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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Rao Engineering Ltd announced on 15 February 2026 a plan to discontinue its Foundry division and signed a binding sale agreement on 10 March 2026 for net assets with carrying amount ₹ 8,00,000 (book value) and net selling price of ₹ 6,50,000 after the purchaser's agreed adjustments. Year-end is 31 March 2026. The Foundry earned a pre-tax operating profit of ₹ 90,000 for the year up to 31 March 2026. The sale will be completed on 30 June 2026. Assuming the impairment rules of AS 28 apply, what total pre-tax loss from the discontinuing Foundry operation should be reported in the year ended 31 March 2026 for disclosure (ignoring tax)?

The total pre-tax loss is ₹ 60,000. The Foundry's net assets of ₹ 8,00,000 are written down to the ₹ 6,50,000 net selling price, an impairment of ₹ 1,50,000, and the ₹ 90,000 operating profit is set against it, leaving a net loss of ₹ 60,000.

  1. ALoss of ₹ 60,000Correct
  2. BLoss of ₹ 1,50,000
  3. CProfit of ₹ 90,000
  4. DLoss of ₹ 2,40,000

Explanation

Net assets are carried at ₹ 8,00,000 but will be realised at ₹ 6,50,000, so an impairment loss of ₹ 1,50,000 is recognised under AS 28 in the year, as the sale agreement exists at the balance sheet date. Combined with the operating profit of ₹ 90,000, the net pre-tax result is 90,000 - 1,50,000 = loss of ₹ 60,000. Reporting only the impairment gives ₹ 1,50,000, ignoring the operating profit. Adding them wrongly gives ₹ 2,40,000.

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