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31, 20X2 (in 000s): �DR Cost of sales 155,300 CR Franchise fee 18,000 CR Buildings accumulated depreciation �102,529 CR Furniture and fixtures accumulated depreciation �8,971 CR Plant and equipment accumulated depreciation �25,800 To record the allocation of impairment loss. Note: The impairment loss of $111,500 on both leasehold building and furniture and fixtures has been allocated between the two on the basis of their carrying amount.
c) Disclosure note Impairment The following impairment losses were included in cost of sales (in 000s): �Asset Impairment loss Franchise $ 18,000 Leasehold buildings 102,529 Furniture and fixtures 8,971 Plant and equipment 25,800 $155,300 The impairment losses were based on fair value less costs of disposal. The fair value of the leasehold building and furniture and fixtures was based on a valuation at open market value. Plant and equipment are valued based on second-hand sales prices. The franchise
has a zero fair value less costs of disposal as it is not transferable. Source: Topic 4.4
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS PROBLEMS Practice Problem 1 (Easy 15 minutes) �The carrying amount of the depreciable properties owned by Pereira Inc. as at December 31, 20X6, was: (in millions) Cost $150 Accumulated depreciation (40) $110 The company depreciates all properties using the straight-line method over 40 years. In July 20X7, the board decided to sell a surplus property. The property had been boughtfor $10 million on March 1, 20X1. The property was put on the market on September 1, 20X7, with the expectation that it would sell within 10 months. It was sold on April 15, 20X8, for $8.5 million. Selling costs were $120,000. As at September 1, 20X7, the property was estimated to have a fair value of $8.4 million and selling costs were estimated at $100,000. There were no significant changes in these estimates at December 31, 20X7. The property has not been impaired in previous years.
Required: a) Explain how the property should be dealt with in the financial statements of Pereira for the year to December 31, 20X7. b) Prepare calculations to show any gain or loss that would arise on the disposal of the property in 20X8. c) Prepare the necessary journal entries for both the 20X7 and 20X8 fiscal years. Practice Problem 2 (Average 25 minutes) �Grape-to-Gullet Ltd. (GTG) has operated a vertically integrated wine business for a number of years. It owns vineyards in Ontario and British Columbia with the grapes being used in its own wine fermentation facilities. The wine is then sold through the companys own �chain of retail outlets. The year end of the company is June 30, and the audited statement of comprehensive income for the year ended June 30, 20X2, along with the draft figures for the year ended June 30, 20X3, are as follows:
(in 000s) �June 20X3 (draft) June 20X2 (audited) Revenue $21,000 $20,000 Cost of goods sold (15,000) (13,500) Gross profit 6,000 6,500 Distribution costs (250) (200) Administrative expenses (1,680)
(900) Operating income 4,070 5,400 Finance costs (530) (310) Income before tax 3,540 5,090 Tax expense (1,093) (1,490) Net income for the year $ 2,447 $ 3,600