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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Narmada Chemicals Ltd. is discontinuing its dyes division. In 2025-26 the division's revenue was ₹10,00,000 and expenses were ₹8,50,000. A binding sale agreement was signed on 1 March 2026 for the assets with a book value of ₹4,00,000 for ₹3,40,000 and the sale will complete in 2026-27. The agreement also requires paying ₹30,000 as employee termination cost, which the company is obliged to pay. Ignore tax. The agreement is the initial disclosure event. What amount of pre-tax profit or loss should be reported for the discontinuing operation in 2025-26, treating the impairment and obligations as per AS 24?

The reported result is a profit of ₹60,000: operating profit of ₹1,50,000 less the ₹60,000 write-down to sale price and the ₹30,000 termination obligation.

  1. ALoss of ₹40,000Correct
  2. BProfit of ₹1,50,000
  3. CLoss of ₹60,000
  4. DProfit of ₹1,20,000

Explanation

Operating profit = 10,00,000 - 8,50,000 = ₹1,50,000. Assets are written down to the agreed price: loss of 4,00,000 - 3,40,000 = ₹60,000. Termination cost obligation = ₹30,000 provided. Net = 1,50,000 - 60,000 - 30,000 = ₹60,000 profit. Check options: this does not match any listed value except Profit ₹1,20,000 (omits termination) or Profit ₹1,50,000 (omits both). The correct net is therefore a profit of ₹60,000, so none of the listed options is right.

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