Question

On December 31, 2012, the Board of Directors of Fox Manufacturing, Inc. committed to a plan to

discontinue the operations of its Owl division. Owl's 2012 operating loss was $1,400,000, and the fair

value of its facilities exceeded its carrying value by $500K. During 2013, the year that Owl was actually

sold, Owl generated an operating loss of $350K, and it was sold at a $150K loss. Fox’s tax rate is 20%. In

its 2013 Income Statement, what amount should Fox report as loss from discontinued operations?

a.

$400,000

b.

$500,000

c.

$280,000

d.

$120,000

The correct answer is A, I want to know how to caculate. And please explain what is discountinued operation, and how usually how we cacualte Income from Discountinued Operations.

Answer 1

Discontinued operations is a Component of Entity that is disposed off or classified as held for sale

Components means Seperate major line of business or region

Disposed off or classified as held for sale ie It has been disposed off or the company is planning to disposed off

As per IFRS 5, "Post Tax Income and loss from discontinued operations should be should seperately shown in the Income Statement on the date of disposal of assets "

Income and loss will include Both Operating loss ($350K) and Capital loss ($150K)

Loss from Discontinued operation = ( $350,000 + $ 250,000 ) x (1-20%)*

Loss from Discontinued operation = $400,000

* Tax Saving on loss

Please let me know if you have any questions