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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Kaveri Industries Ltd is discontinuing its Plastics division. For the year, the division's revenue was Rs 80 lakh and expenses Rs 92 lakh. During the year the company also recognised a loss of Rs 5 lakh on sale of some division assets and an impairment loss of Rs 3 lakh on the remaining assets. Income-tax relating to the discontinuing operation is a credit of Rs 4 lakh. The amount of pre-tax loss and the after-tax loss from the discontinuing operation to be disclosed under AS 24 are respectively:

The pre-tax loss is Rs 20 lakh, being the operating loss of Rs 12 lakh plus Rs 5 lakh loss on asset sale and Rs 3 lakh impairment. After the Rs 4 lakh tax credit, the after-tax loss is Rs 16 lakh.

  1. ARs 20 lakh and Rs 16 lakhCorrect
  2. BRs 12 lakh and Rs 8 lakh
  3. CRs 17 lakh and Rs 13 lakh
  4. DRs 20 lakh and Rs 24 lakh

Explanation

Pre-tax loss = (80 - 92) operating loss of 12 + loss on disposal of assets 5 + impairment loss 3 = Rs 20 lakh. Tax is a credit of Rs 4 lakh, so after-tax loss = 20 - 4 = Rs 16 lakh. Rs 12 lakh and Rs 8 lakh ignores asset disposal and impairment losses; adding the tax credit (Rs 24 lakh) is a sign error.

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