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OK, so again scenario covering these 5 questions. So look at the first
question then. No. 21 Which of the following must exist if you're going to call
something a discontinued operation. So the operation must represent a separate
major line of business - yep, that is true! The operation is a
subsidiary - not necessarily. The operation has been sold always been held for sale,
yeah, that's true. The operations is considered not to be capable of making a future profit - no,
not that it can be profitable so yeah, the answer is "C" 1 & 3. Question
22: IFRS 5 then prescribes the recognition criteria for something to be
held for sale. For an asset or dispose of goods we classify this help sale the
sale must be highly probable - correct. Which of the following makes it highly
probable. A buyer must have been located - not necessarily, not yet. The asset must
be marketed at a reasonable price - yes, I agree with that. Management must be
committed to a plan to sell the asset - yep. The sale must be expected to take
place from the next six months - no, within a year. Okay so it's within a year and
therefore the answer is "A"! Question 23: What is the employee cost associated
with the closure of this Factory. So what's the employee cost, let's have a
look - closure of the factory. So they're closing down the factory and of the
factories 250 employees, 50 will be retrained,
so therefore the future and deployed to other subsidiaries while
that's cost 225,000., the remainder are made redundant. So it's remainder,
the other 50, the retraining cost, that's our future cost, so it's the other
200 employees - yeah and they're gonna get redundancy at 5,000 each so 200 times by
5,000 is 1 million and so the answer is "D"! Question 24: What is the profit or loss
on the discontinued operations related to property, plant and equipment
for the year ended 30th September. So remember you take it from its carrying value and you
drop it in to current assets held for sale and it is how much you drop it
at, well the lower of carrying value and fair value minus cost for sale, because
we're about to sell it. So let's have a look at this then. The factory had a
carrying amount of 2.2 millions there's the carrying amount, it's expected only
to sell for 500 incurring 50 selling costs so fair value minus cost to sell
is 500 minus 50 = 450,000. So it's going to fall
from 2,2 million and we're going to drop it in to held for sale at
450,000 so what's that - 2,200 - 450 loss of
1,750, let's hope that's there. 1.75 million
loss - yeah, 24 "A"! Final question then. In respect of the operating leases and
penalties what provision would go in the accounts. Let's have a look!
The company rented a number of machines - yeah, under operating
leases and they have an average for 3 years to run. The present value of
these future lease payments was 1 million
however the lessor has stated they'll accept 850 okay if paid on 30th of
October 2003 as full settlements. So we can bring in a
provision for the full 850. Not the 1 million they're allowing is us,
they're letting us off with just having to pay 850 but there's a penalty payment
due to the non completion estimated to be 200,000 so it's plus 200,000
to 1,050,000. 50% of which is expected to be
recovered from insurers, well that's what we call a contingent asset, okay and that
contingent asset it needs to be virtually certain in order for us
to bring it in and it says only "expected" to be recovered so that's not enough to
bring in anyway but also it wouldn't net off against the provision you do set
them off separately, do show them separately the potential
assets and potential liabilities so the answer is 1,050,000, yeah, which I am really
hoping there it is. 25 the answer is "C"!
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