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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
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?
That is a question that I have not a clue how to answer!
Just thank your lucky stars that that is a question that will not be asked next week!