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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Kaveri Industries Ltd decided to discontinue its Paper Division. For the year, the division's revenue was ₹8,00,000 and its expenses were ₹9,20,000. On disposal of the division's assets, it recognised a gain of ₹3,50,000 and an impairment loss of ₹1,10,000 on other assets of the division. Ignore tax. What pre-tax amount of profit or loss attributable to the discontinuing operation is disclosed under AS 24 (including the gain/loss on disposal or impairment)?

The pre-tax result is a profit of ₹1,20,000. AS 24 requires the operating loss of ₹1,20,000 to be combined with the disposal gain of ₹3,50,000 and the impairment loss of ₹1,10,000, giving a net profit of ₹1,20,000.

  1. AProfit of ₹1,20,000
  2. BLoss of ₹2,30,000
  3. CProfit of ₹1,10,000Correct
  4. DLoss of ₹1,20,000

Explanation

Operating result = 8,00,000 - 9,20,000 = loss of 1,20,000. Add gain on disposal 3,50,000 and deduct impairment loss 1,10,000: -1,20,000 + 3,50,000 - 1,10,000 = 1,20,000. Check: net of gain and impairment = 2,40,000; 2,40,000 - 1,20,000 = 1,20,000 profit. Hmm, this equals option 1, so recomputing: the correct figure is a profit of ₹1,20,000.

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