Question

The partial statement of comprehensive income for Jenn-LO Ltd., a publicly accountable entity,

for the year ended December 31, 2001, is as follows:

Sales $24,000,000

Cost of goods sold (15,000,000)

Gross margin 9,000,000

Operating expenses 7,500,000

Operating income 1,500,000

Income taxes (30%) 450,000

Net income $ 1,050,000

In August 20x1, the company’s board made a decision to sell one of its six divisions. In

September the division was put up for sale with a listing price of $9.5 million. The division being

sold had revenues of $3.2 million, cost of goods sold of $2.3 million and operating expenses of

$850,000. These amounts are included in the above statement of comprehensive income.

The carrying value of the net assets of the division were $9.5 million, and the fair market value

of the division is estimated to be $8.5 million. The costs to sell the division are expected to be

11% of the fair market value of the net assets. These amounts have not been taken into

consideration in preparing the statement of comprehensive income above.

Required -

Prepare a revised statement of comprehensive income.

Answer 1

impairment loss

particulars	$
carrying value	$9,500,000
net realizable value
NRV=fair market value less cost to sell =$8,500,000*(1-11%)	$7,565,000
impairment loss	$1,935,000

revised statement of comprehensive income

particulars	$
sales	$24,00,000
less:income of discontinuing operation	$3,200,000
income of continuing operation	$20,800,000
less:COGS from continuing operation ($7,500,000-$750,000)	$12,700,000
gross margin	$8,100,000
operating expense for continuing operation ($7,500,000-$850,000)	$6,650,000
operating income	$1,450,000
gain from discontinuing operation	$50,000
impariment loss from discontinuing operation	$1,935,000
income before taxes	($435,000)
NET INCOME	($435,000)