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Discontinued operations

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Discontinued operations

  • This topic has 7 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • October 19, 2014 at 10:19 am #204918
    akaysia
    Participant
    • Topics: 12
    • Replies: 12
    • ☆

    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

    October 19, 2014 at 11:07 am #204926
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23318
    • ☆☆☆☆☆

    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?

    October 19, 2014 at 1:08 pm #204939
    akaysia
    Participant
    • Topics: 12
    • Replies: 12
    • ☆

    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?

    October 19, 2014 at 2:13 pm #204947
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23318
    • ☆☆☆☆☆

    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!)

    October 19, 2014 at 11:08 pm #205039
    akaysia
    Participant
    • Topics: 12
    • Replies: 12
    • ☆

    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

    October 20, 2014 at 12:09 pm #205096
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23318
    • ☆☆☆☆☆

    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?

    October 21, 2014 at 7:25 pm #205313
    akaysia
    Participant
    • Topics: 12
    • Replies: 12
    • ☆

    It only gives you a chose of;

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

    ?????

    October 22, 2014 at 7:16 am #205349
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23318
    • ☆☆☆☆☆

    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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