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The information is as follows:
Plant has carrying value of 2.2m, expected to sell for 500,000 incurring costs of 50,000. Factory itself expected to make profit of 1.2m
Question:
what is the profit or loss on discontinued operations relating to PPE
I got 550,000 loss but the answer is 1.75m loss as the profit on the factory is ignored but I don’t understand why?
Realisable value is $500,000 less $50,000 selling costs = $450,000
Compared with $2,200,000 that’s a loss of $1,750,000
The gain on the factory? There shall be a minimum of netting off. Individual classes of asset should be dealt with and disclosed separately
ok thanks, I guess I was assuming that they expected the plant and the factory to be netted as the question uses the phrase ‘property, plant and equipment’ – I took that to imply all classes i.e. what is the total gain/loss.
But you don’t need to look at too many past exam questions to realise that land and buildings are always shown as a separate category to PPE
ok thanks, I will definitely remember this now but one other question, what type of property does fall under the heading of property in PPE? Is the factory not a property, what’s the difference between a property and a building in this context?
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