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Dear Mike, Sorry for disturbing once again. Please assist with my problem.
Manco has beee experiencing losses at its furniture making operation, which is treated as separate operating segment.The company’s year end is 30 September. At a meeting on 1 July 20X0 the directors decided to close down the furniture making operation on 31 January 20X1, and then dispose of its no-current assets on a piecemeal bases. Affected employees and customers were informed of the decision and a press announcement was made immediately after the meeting.
On 1 July 20X0, the factory had a carrying amount of $3.6million and is expected to be sold for net proceeds of $5 million…………Sollution: As a separate business segment is being closed down, this will be discontinued operation. As they are due to be sold six months from the date of the closure announcement, the factory and plant could be classified as held for sale at 30September 20X0. If Manco intends to continue using them and does not classify them as held for sale, they will continue to be depreciated up to 31 January 20X1. The factory will be subject to the normal depreciation charge.
I see a contradiction in this task. As, firstly, it is assumed, that the factory and the plant can be classified as held for sale. If so, IFRS 5 states, that depreciation should not be charged, even if they are still being used by the entity.Then it is assumed, that Manco will continue to use the factory and plant, and, consequently, normal depreciation will be charged. I could not understand how it was found, that Manco will continue to use the factory, and even if continuing using the factory, should not the deprecion stopped.
Thank you in advance for support.
Best regards!“the factory and plant could be classified as held for sale at 30 September 20X0. If Manco intends to continue using them and does not classify them as held for sale, they will continue to be depreciated up to 31 January 20X1. The factory will be subject to the normal depreciation charge.”
So where’s the problem? If we don’t classify as held for sale, we keep using them, and continue to depreciate them.
If we DO classify as held for sale, no depreciation. But equally, no further use of the asset
Dear Sir, Ok. Suppose, it was just an assumption, that Manco will not classify it as held for sale. I was confused, where they got the fact that Manco will not classify the operation as held for sale, as it was decided during the meeting to sell the NCAs on piecemeal basis.
Thank you!One of the main criteria for being classified as “held for sale” is that the asset shall be available for immediate sale. Clearly, in this case, it isn’t.
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