- 15 Marks
Question
a. IFRS 5 has two main areas of focus: It specifies the accounting treatment of assets held for sale, and it sets the presentation and disclosure requirements for discontinued operations.
Required: Explain the criteria to be met before assets can be classified as held for sale in accordance with the provisions of IFRS 5. (5 Marks)
b. The following are the management accounts extracts from the statement of profit or loss of Abia Nigeria Limited presented at board of directors meeting of the company by the management accountant.
……………October 31, 2024…………… October 31, 2023
| Internet N’000 | Travel agencies N’000 | Car hire N’000 | Total N’000 | Total N’000 | |
|---|---|---|---|---|---|
| Revenue | 138,000 | 84,000 | 12,000 | 234,000 | 240,000 |
| Cost of sales | (108,000) | (99,000) | (9,000) | (216,000) | (192,000) |
| Gross profit/(loss) | 30,000 | (15,000) | 3,000 | 18,000 | 48,000 |
| Operating expenses | (6,000) | (9,000) | (600) | (15,600) | (12,000) |
| Net profit/(loss) before tax | 24,000 | (24,000) | 2,400 | 2,400 | 36,000 |
(i) The results for the travel agencies division for the year ended October 31, 2023 were revenue N108 million, cost of sales N90 million and operating expenses N9 million.
(ii) At the board meeting held by the Directors it was decided that the operations of the travel agencies met the conditions under IFRS 5, hence the travel agencies unit should be treated as a discontinued operations.
As the chief accountant of the company,
You are required to: Prepare the summarised statement of profit or loss of Abia Nigeria Limited for the year ended October 31, 2024 together with the comparative figures for inclusion in the annual report of the company. (10 Marks)
Answer
(a) The following are the criteria to be met before assets can be classified as held for sale or discontinued operations in accordance with IFRS 5:
(i) The asset must be available for immediate sales in its present condition;
(ii) Management must be committed to a plan to sell it;
(iii) There must be active programme in locating a buyer;
(iv) The assets must be marketable at a price reasonable to its current fair value;
(v) The sale of the assets is expected to take place within one year from the date of the classification;
(vi) It is unlikely that a significant change will be made to such plan or that such plan will be withdrawn by the entity; and
(vii) The sale of the assets must be probable.
(b) Abia Ltd
Statement of profit or loss for the year ended October 31, 2024
| 2024 N’000 | 2023 N’000 | |
|---|---|---|
| Continuing operations: | ||
| Revenue | 150,000 | 132,000 |
| Cost of sales | (117,000) | (102,000) |
| Gross profit | 33,000 | 30,000 |
| Operating expenses | (6,600) | (3,000) |
| Profit/(loss) from continuing operations | 26,400 | 27,000 |
| Profit/(loss) from discontinued operations | (24,000) | 9,000 |
| Profit for the year (w1) | 2,400 | 36,000 |
Notes:
W1) Analysis of discontinued operations
| 2024 N’000 | 2023 N’000 | |
|---|---|---|
| Revenue | 84,000 | 108,000 |
| Cost of sales | (99,000) | (90,000) |
| Gross profit/(loss) | (15,000) | 18,000 |
| Operating expenses | (9,000) | (9,000) |
| Profit/(loss) | (24,000) | 9,000 |
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