Page 20 - OCS Workbook - Day 2 Suggested Solutions (May 2018)

CIMA MAY 2018 – OPERATIONAL CASE STUDY

This single figure is comprised of, profit after tax for discontinued operations, gain or loss on disposal
of assets dispose of and gain or loss arising from the adjustment in value from carrying value to fair
value. This should allow us to present in the “continuing operations” only our most successful
components of operations which will present more favourably to shareholders.

In the notes to the financial statements we would provide analysis of the single figure presented on
the statement of profit or loss which would be broken down into

• Revenues, expenses, profit/loss before tax and income tax of the discontinued operation
• The related tax expense
• Gain or loss arising from the adjustment in value from carrying value to fair value
• Gain or loss on disposal of assets

In addition on the statement of cash flows there should be a disclosure of net cash flows for the
discontinued operation for:

• Net cash flows from operating, investing and financing activities
• A description of the discounted operation/non-current asset
• A description of the facts and circumstances of the sale

Closure of stores, but not yet disposed of by year end

If at the date of financial statements we have not yet disposed of but no longer operating the stores
then we should classify the stores as “held for sale” in accordance with IFRS5 Non-current Assets Held
for Sale and Discontinued Operations. In accordance with IFRS 5 the assets can be treated as held for
sale if all the following criteria are met

• available for sale in its present condition
• the sale is highly probable
• a reasonable price has been set
• the sale is expected to complete within one year from the date of classification.

Once we classify as held for sale the assets would no longer be depreciated and the asset would be be
removed from non-current assets and reclassified below current assets. The value shown within
current assets must be representative of the lower of the carrying amount v’s the fair value less costs
of disposal. If the fair value is lower, then the asset would need to be impaired in line with IAS 16
rules and the impairment loss recognised on the statement of profit or loss.

I hope that this has explained the issues in sufficient detail. If you have any further questions please
do not hesitate to contact me.

Kind regards
Finance Officer
Mansako.

76 KAPLAN PUBLISHING