- 15 Marks
FR – L2 – Q37 – Financial Reporting Standards and Their Applications
Question
Kofi Plc operates its business through a number of divisions. It has a year end of 31 December. Set out below are extracts from the draft financial statements of Kofi Plc for the year ended 31 December Year 1.
Statement of profit or loss for the year ended 31 December Year 1
| GH₵000 | |
|---|---|
| Revenue | 3,900 |
| Cost of sales | (2,500) |
| Gross profit | 1,400 |
| Distribution costs | (300) |
| Administrative expenses | (800) |
| Profit before tax | 300 |
| Income tax expense | (90) |
| Profit for the period | 210 |
Statement of financial position at 31 December Year 1
| Assets | GH₵000 | GH₵000 |
|---|---|---|
| Non-current assets | ||
| Property, plant and equipment | 1,900 | |
| Intangible assets | 40 | |
| 1,940 | ||
| Current assets | ||
| Inventories | 350 | |
| Trade and other receivables | 190 | |
| Cash | 90 | |
| 630 | ||
| Total assets | 2,570 | |
| Equity and liabilities | GH₵000 | GH₵000 |
| Equity | ||
| Share capital | 600 | |
| Retained earnings | 1,700 | |
| 2,300 | ||
| Current liabilities | ||
| Trade and other payables | 195 | |
| Current tax payable | 75 | |
| 270 | ||
| Total equity and liabilities | 2,570 |
On 30 November Year 1 Kofi Plc made the decision to close Division B, which is located in a different part of the country and covers a separate major line of business. This decision was immediately announced to the press and to the workforce and, by the end of Year 1, a buyer had been found.
The directors of Kofi Plc have calculated the following:
- 15% of the entity’s income and expenses for the year was attributable to Division B.
- No tax is attributable to Division B.
- Property, plant and equipment of GH₵510,000 and payables of GH₵10,000 in the above statement of financial position relate to Division B. The fair value minus costs to sell of the property, plant and equipment is GH₵450,000.
Required
Redraft the above financial statements to meet the provisions of IFRS 5: Non-current assets held for sale and discontinued operations. Work to the nearest GH₵000.
Answer
Kofi Plc
Statement of profit or loss for the year ended 31 December Year 1
| Continuing operations | Discontinued operations | Total | |
|---|---|---|---|
| GH₵000 | GH₵000 | GH₵000 | |
| Revenue | 3,315 | 585 | 3,900 |
| Cost of sales | (2,125) | (375) | (2,500) |
| Gross profit | 1,190 | 210 | 1,400 |
| Distribution costs | (255) | (45) | (300) |
| Administrative expenses | (680) | (120) | (800) |
| Impairment loss (510-450) | – | (60) | (60) |
| Profit before tax | 255 | (15) | 240 |
| Income tax expense | (90) | – | (90) |
| Profit/(loss) for the period | 165 | (15) | 150 |
Statement of financial position at 31 December Year 1
| Assets | GH₵000 | GH₵000 |
|---|---|---|
| Non-current assets | ||
| Property, plant and equipment | 1,390 | |
| Intangible assets | 40 | |
| 1,430 | ||
| Current assets | ||
| Inventories | 350 | |
| Trade and other receivables | 190 | |
| Cash | 90 | |
| Non-current assets classified as held for sale | 450 | |
| 1,080 | ||
| Total assets | 2,510 | |
| Equity and liabilities | GH₵000 | GH₵000 |
| Equity | ||
| Share capital | 600 | |
| Retained earnings (1,700-60) | 1,640 | |
| 2,240 | ||
| Current liabilities | ||
| Trade and other payables (195 – 10) | 185 | |
| Current tax payable | 75 | |
| Liabilities classified as held for sale | 10 | |
| 270 | ||
| Total equity and liabilities | 2,510 |
Tutorial note
Division B is classified as discontinued in Year 1 because, although it has not been sold during the period, it meets the IFRS 5 criteria for classification as ‘held for sale’.
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