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Neutron co’s decided to close down one of its factory in 30 September 20×3
The factory’s plant had a carrying amount of 2.2 m but is only expected to sell for 500000 incurring 50000 of selling cost . the factory itself is expected to sell for profit of 1.2 m .
what is the profit and loss on discontinued operations relating to property,plant and Equipment for the year ended 30 September 20×3 .
the answer is from kaplan 1.75m loss
the impairment loss on plan is 1750000 ( 2200000-(500000-50000))i understood this part of impairment ? but why should i calculate impairment ? and what about the factory itself shouldn’t i include it in the calculation ?
Hi,
When we reclassify as a NCAHFS then we transfer it at the lower of the CV and the FV less costs to sell.
For the factory, it is going to be sold at a profit and so the FV less costs to sell must be higher than the CV as the profit is made from receiving more than the CV of the asset.
For the plant, the FV less costs to sell is lower than the CV. This reduction in the value of the asset is treated as an impairment of the asset.
Hope that clears it up for you.
Thanks
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