MC Question 21
The following scenario relates to questions 21–25.
At a board meeting in June 20X3, Neutron Co’s directors made the decision to close down one of its factories by 30 September 20X3 and market both the building and the plant for sale.
The decision had been made public, was communicated to all affected parties and was fully implemented by 30 September 20X3.
The directors of Neutron Co have provided the following information relating to the closure:
Of the factory’s 250 employees, 50 will be retrained and deployed to other subsidiaries within the Neutron group during the year ended 30 September 20X4 at a cost of $125,000.
The remainder accepted redundancy at an average cost of $5,000 each.
The factory’s plant had a carrying amount of $2·2 million, but is only expected to sell for $500,000, incurring $50,000 of selling costs. The factory itself is expected to sell for a profit of $1·2 million.
The company also leased a number of machines in the factory which have an average of three years to run after 30 September 20X3.
The present value of these future lease payments at 30 September 20X3 was $1 million, however, the lessor has stated that they will accept $850,000 if paid on 30 October 20X3 as a full settlement.
Penalty payments, due to the non-completion of supply contracts, are estimated to be $200,000, 50% of which is expected to be recovered from Neutron Co’s insurers.
Which of the following must exist for an operation to be classified as a discontinued operation in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations?
| (1) | The operation represents a separate major line of business or geographical area |
|---|---|
| (2) | The operation is a subsidiary |
| (3) | The operation has been sold or is held for sale |
| (4) | The operation is considered not to be capable of making a future profit following a period of losses |
A 2 and 4
B 3 and 4
C 1 and 3
D 1 and 2