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Hello
I would like to ask a question about discontinued operations, from Mar Jun 2023 Q3b Landry Co.
In the answers it says that Landry Co can be classified as held for sale.
But it also says that Landry Co is not a discontinued operations because there is “no information to state that the operations have ceased”I wanted to know how one would decide if a held for sale is classified as Discontinued Operations.
Is this because the sale has not yet been finalised and no contract has been signed?
I understand that discontinued operations can be classified into 2 groups:
disposed of
Held for saleThe disposed of portion is easy to understand but Held for Sale is a little more tricky.
Also I wanted to clarify if the finalising of the contract happens after year end.
Does it classify as discontinued Operations?
Because for Sep Dec 2020 Q3.
The Year end of the Financial Statements was 31 March 20X5.
But the finalising of the contract happened on 1 Aug 20X5.
The answers conclude that the scientific publishing division is a discontinued operations. But I am unsure on why.Sorry the Question from Landry Co. is from Mar Jun 2024. Q3b, not 2023.
Landry Co
The Group is in the process of arranging to sell Landry Co, one of its wholly owned subsidiaries where Landry Co is currently the only subsidiary which operates from a foreign country. The audit file states that negotiations with two prospective buyers are in progress and the Group has set the sales price at $90 million. The carrying amount of Landry Co in the consolidated financial statements, including goodwill, is $78 million and the company contributed revenue of $144 million and profit before tax of $10·1 million to the Group during the year to 31 March 20X5. One of the potential buyers has used an independent firm to prepare a due diligence report on Landry Co’s assets and liabilities. The potential buyer is expected to make an offer to purchase the company once this process is complete.
The Group finance director has not made any disclosures with respect to the potential upcoming sale in the consolidated financial statements for the year ended 31 March 20X5, as the sale has not yet been finalised and no contract has been signed.Apologies for the delay in responding – I wanted to check with a colleague before suggesting that the answer is wrong – my colleague concurs. Since the first conclusion is that Landy Co is a held-for-sale disposal group – we think it is more likely than not a discontinued operation because it seems to be a separate geographic region (it is the only foreign operation) and if you “do the math” on assets revenue/profit/total assets It is surely “major”:
Revenue 144 million 810 million 17.8%
Profit Before Tax 10.1 million 34 million 29.7%
Carrying Amount 78 million 516 million 15.1%So discontinued operations have nothing to do with contract finalising and operations ceasing?
and it should be based only on these 3 conditions?
– Separate major line of business or geographical area of operations
– Single co-ordinated plan to dispose of a separate line of business/ geographical area.
– Is a subsidiary acquired exclusively with a view to re-saleThank you for clarifying this, but the answer was given by ACCA and this is a little frustrating.
I am now unsure on how to approach this if a similar question comes up.This is the answer given by ACCA from the study exam hub:
Landry Co classified as a discontinued operation:
The information suggests that the planned disposal of Landry Co is in the advanced stages as they are in talks with two potential buyers, management appears to be committed to sell and it would appear to fit the criteria as held for sale.
However, it should also be considered whether Landry Co fits the requirement to be treated also as a discontinued operation.
IFRS 5 defines a discontinued operation as a component of an entity which either has been disposed of or is classified as held for sale, and:
– represents either a separate major line of business or a geographical area of operations; or
– is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operation.
– Is a subsidiary acquired exclusively with a view to resale.In the case of Landry Co, however, there is no information to state that the operations have ceased, therefore, it should only be classified as an asset which is held for sale and not as a discontinued operation.
Apologies, I checked the exam study hub again, and it appears that I may have had an older version of the 2024 Mar Jun Answer.
The line:
In the case of Landry Co, however, there is no information to state that the operations have ceased, therefore, it should only be classified as an asset which is held for sale and not as a discontinued operation.Does not appear.
So just to clarify as long as a subsidiary meets the conditions of held for sale and
– Separate major line of business or geographical area of operations
– Single co-ordinated plan to dispose of a separate line of business/ geographical area.
– Is a subsidiary acquired exclusively with a view to re-saleIt would be discontinued operations?
And it has nothing to do with finalised contracts?
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