# Discontinued operations

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This topic contains 7 replies, has 2 voices, and was last updated by  MikeLittle 7 months ago.

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• akaysia
Participant

Hi

Would we classify redundancy costs and reorganisation costs as part of discontinued operations?

Also Shaheen Plc has net profit attributable to ordinary shareholders of \$2250000 for the year ended 30 June 2006. Shaheen has had 7 million \$1 ordinary shares in issue for many years. During the current year on 1st April 2006 Shaheen made a rights issue of 2 shares for every 5 held . The rights issue offer price was \$2.75 and the share price on the prior day was \$4.50.

How would the working for this be? I know we have to do a table but a bit confused with the 7 million shares?

Thanks

MikeLittle
Keymaster

Redundancy costs ….. yes

Reorganisation costs ……no\\redundancy is final and clearly associated with the closure / discontinued operation

Reorganisation is related to the continuing business and therefore not a part of the discontinuance

The rights fraction calculation table is as follows, but you’ll probably have to excuse the alignment!

Number Value \$
5 4.50 22.50
2 2.75 5.50

7 B 4.00 28.00

ie you now have 7 shares with an aggregate value of \$28.00 so theoretical value of each share is \$4 and the rights fraction is 4.5 / 4

Can you go on from there?

akaysia
Participant

So would I have as follows:

Earnings / old shares x 4.5/4 x 9/12 then add number of shares after which is still 7 million x 3/12 x 7/5?

MikeLittle
Keymaster

No! Or maybe, Yes!

Are you happy with the rights fraction of 4.5 / 4?

Now, the table to calculate the weighted average number of equity shares goes as follows and again you’re going to have to excuse the alignment!

Date number period fraction Wanes
1. 07.x5 7,000,000 9/12 4.5/4 5,906,250
1. 04.x6 9,800,000 3/12 – 2,450,000

So weighted average number is (5,906,250 + 2,450,000) 8,356,250 and earnings are \$2,250,000 so eps is 26.9 cents (check my calcs – I did them without calculator!)

akaysia
Participant

Ok I get the same thanks

P purchased S on 1/7/05 y/e 31/12/05 they have below:
P. S
Rev. 3500. 1000
Cos. (2800). (800)
GP. 700. 200

In the year P sold goods to S for \$2 million which were made evenly throughout the year. 20% of these goods remain in year end inventory – all of which we’re sold after 1/7. These goods were all sold at mark up of 25%. How would I work out the figure for the P group consolidated COS fit the year please?

I know they have only purchased part way through 6 months?

Thanks

MikeLittle
Keymaster

Pup in P is 2m x 25/125 x 20% = 80,000

So pup in P retained earnings is (80,000)

Group revenue should be decreased by 6/12 x 2m

Group cosales should be decreased by 6/12 x 2m

Group cosales should be increased by 80,000

Revenue is therefore 3,500 + (1/2*1,000) – 1,000 = 3,000
Cosales is 2,800 + (1/2*800) – 1,000 + .08 = 2,280
GP = 720

OK?

akaysia
Participant

It only gives you a chose of;

A. \$1680000
B. \$1760000
C. \$2680000
D. \$2760000

?????

MikeLittle
Keymaster

Strange! If S has bought \$2m from P during the year, how come the S cost of sales is only \$800?

Unless there’s something you’re not telling me, or you’ve given me a wrong date or amount, I can’t see why my answer is incorrect.

What is the correct answer per the printed solution?

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