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December 28, 2020 at 8:42 pm #601083opentution4190
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My question is whether following profit and loss statement is including result of discontinued operation of Deadwood, as question mentioned it is consolidated……….if yes
1. Then while calculating ROCE Deadwoods, net asset removed from both the year buy why PBIT is not reduced which belongs to Deadwoods.
2. Where are the adjustment of that one off item loss on disposal of Deadwoods.
224 Greenwood Co 36 mins
Greenwood Co is a public listed company. On 31 March 20X7 Greenwood Co sold its 80%-owned subsidiary –Deadwood Co – for $6 million. The directors have been advised that the disposal qualifies as a discontinued operation and it has been accounted for accordingly. The disposal proceeds were not collected until after the year end.
Greenwood Co did not own any other subsidiaries.
Extracts from Greenwood Co’s financial statements are set out below.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS FOR THE YR ENDED 31 MARCH
Revenue 27,500 21,200
Cost of sales (19,500) (15,000)
Gross profit 8,000 6,200
Operating expenses 2,900) (2,450)
Finance costs (600) (250)
Profit before taxation 4,500 3,500
Income tax expense (1,000) (800)
Profit for the year from continuing operations 3,500 2,700
Profit/(loss) from discontinued operations (1,500) 320
Profit for the year 2,000 3,020
Profit attributable to:
Owners of Greenwood 2,300 2,956
Non-controlling interest (300) 64
2,000 3,020January 2, 2021 at 10:12 am #601295P2-D2Keymaster
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If Deadwood is a discontinued operation then we should try to look at the results without including these results. As the results are included in one line item under the title ‘Profit/(loss) from discontinued operations then they are not included in the results for continuing operations, hence not adjustment to PBIT. There is an adjustment to the net assets as presumably the net assets of Deadwood are still in the consolidated results.
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