ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - Assets Held for Sale - Past Papers ^{2 / 12}

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?

A    2 and 4
B    3 and 4
C    1 and 3
D    1 and 2

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.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations prescribes the recognition criteria for non-current assets held for sale.

For an asset or a disposal group to be classified as held for sale, the sale must be highly probable.

Which of the following must apply for the sale to be considered highly probable?

A    2 and 3
B    3 and 4
C    1 and 4
D    1 and 2

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.

What is the employee cost associated with the closure and sale of Neutron Co’s factory which should be charged
to profit or loss for the year ended 30 September 20X3?

A     $125,000
B     $1,250,000
C     $1,125,000
D     $1,000,000

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.

What is the profit or loss on discontinued operations relating to property, plant and equipment for the year ended
30 September 20X3?

A     $1·75 million loss
B     $1·75 million profit
C     $550,000 loss
D     $550,000 profit

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.

In respect of the leases and penalty payments, what provision is required in the statement of financial position
of Neutron Co as at 30 September 20X3?

A     $950,000
B     $1,200,000
C     $1,050,000
D     $1,100,000

At 1 April 2014, Tilly owned a property with a carrying amount of $800,000 which had a remaining estimated life
of 16 years.

The property had not been revalued.

On 1 October 2014, Tilly decided to sell the property and correctly classified it as being ‘held-for-sale’.

A property agent reported that the property’s fair value less costs to sell at 1 October 2014 was expected to be $790,500 which had not changed at 31 March 2015.

What should be the carrying amount of the property in Tilly’s statement of financial position as at 31 March
2015?

A     $775,000
B     $790,500
C     $765,000
D     $750,000