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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Kaveri Industries Ltd announced the discontinuance of its Paper division. For the year ended 31 March 2027, the division's revenue was ₹8,00,000 and expenses were ₹9,50,000 (all attributable to the division). Pre-tax gain on sale of division assets was ₹2,00,000 and pre-tax loss on settlement of its liabilities was ₹30,000 (both in the year). Income tax expense related to the ordinary activities of the discontinuing operation is a credit (saving) of ₹45,000, and the tax on the net gain from disposal is ₹51,000. What pre-tax profit or loss from the discontinuing operation's ordinary activities, and the pre-tax amount of gain/loss on disposal, should be disclosed?

The ordinary activities show a pre-tax loss of ₹1,50,000 (revenue 8,00,000 less expenses 9,50,000), and the disposal shows a pre-tax net gain of ₹1,70,000 (gain 2,00,000 less settlement loss 30,000). Tax amounts are disclosed separately, not netted in these pre-tax figures.

  1. ALoss ₹1,50,000 and gain ₹1,70,000Correct
  2. BLoss ₹1,50,000 and gain ₹2,00,000
  3. CLoss ₹1,05,000 and gain ₹1,19,000
  4. DLoss ₹1,20,000 and gain ₹1,70,000

Explanation

Pre-tax result of ordinary activities = 8,00,000 - 9,50,000 = loss of 1,50,000. Pre-tax gain/loss on disposal = gain 2,00,000 less loss 30,000 = net gain 1,70,000. Option C wrongly uses post-tax figures (1,50,000-45,000; 1,70,000-51,000), whereas the disclosure asked is pre-tax. Option B ignores the settlement loss.

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