ACCT2101 _Intermediate Financial Accounting 1_G-I_Ch.

3_12-13 Feb
Ch.3 The Statement of Profit and Loss and Other Comprehensive Income
Assignment Question: (E3-7)
Chance Company had two operating divisions, one manufacturing farm equipment and the other
office supplies. Both divisions are considered separate components as defined by IFRS. The farm
equipment component had been unprofitable, and on September 1, 2023, the company adopted a
plan to sell the assets of the division. The actual sale was effected on December 15, 2023, at a price
of $600,000. The book value of the division's assets was $1,000,000, resulting in a before-tax loss
of $400,000 on the sale.
The division incurred a before-tax loss from operations of $130,000 from the beginning of the year
through December 15. The income tax rate is 20%. Chance’s after-tax profit from its continuing
operations is $350,000.
Required:
Prepare a statement of profit or loss for 2023 beginning with profit from continuing operations.
Include appropriate BPS disclosures assuming that 100,000 ordinary shares were outstanding
throughout the year.

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ACCT2101 _Intermediate Financial Accounting 1_G-I_Ch.3_12-13 Feb
Discussion questions (P3-1, P3-2 and E3-9)
P3-1 Comparative statements of profit or loss; function of expense method
Selected information about income statement accounts for the Reed Company are presented
below (the company’s financial year ends on December 31):

On July 1, 2023, the company adopted a plan to discontinue a division that qualifies as a
component of an entity as defined by IFRS. The assets of the component were sold on
September 30, 2023, for $50,000 less than their book value. Results of operations for the
component (included in the above account balances) were as follows:

In addition to the account balances above, several events occurred during 2023 that have not yet
been reflected in the above accounts:
1. A fire caused $50,000 in uninsured damages to the main office building. The fire was
considered to be an infrequent but not unusual event.
2. An earthquake caused $100,000 in property damage to one of Reed’s factories. The amount of
the Joss is material and the event is considered unusual and infrequent.
3. Inventory that had cost $40,000 had become obsolete because a competitor introduced a better
product. The inventory was sold as scrap for $5,000.
4. Income taxes have not yet been accrued.

Required:
Prepare a statement of profit or loss using the function of expense method for the Reed Company
for 2023, showing 2022 information in comparative format, including income taxes computed at
20%, subtotals for gross profit and operating profit, and EPS disclosures, assuming 300,000
ordinary shares were outstanding.
Remark: Please round your answers for EPS to 2 decimals

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ACCT2101 _Intermediate Financial Accounting 1_G-I_Ch.3_12-13 Feb
P3-2 Discontinued operations
The following condensed income statements of the Jackson Holding Company are presented
for the two years ended December 31, 2023 and 2022:

On October 15, 2023, Jackson entered into a tentative agreement to sell the assets of one of its
divisions. The division qualifies as a component of an entity as defined by IFRS. The division was
sold on December 31, 2023, for $5,000,000. The book value of the division’s assets was
$4,400,000. The division’s contribution to Jackson’s before-tax income from operations for each
year was as follows:

Assume an income tax rate of 20%.

Required:
1. Prepare revised statements of profit or loss according to IFRS, beginning with profit from
continuing operations before income taxes. Ignore EPS disclosures.
2. Assume that by December 31, 2023, the division had not yet been sold but was considered held
for sale.
The fair value of the division’s assets on December 31 was $5,000,000. How would the
presentation of discontinued operations be different from your answer to requirement 1?
3. Assume that by December 31, 2013, the division had not yet been sold but was considered held
for sale.
The fair value of the division’s assets on December 31 was $3,900,000. How would the
presentation of discontinued operations be different from your answer to requirement 1?

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ACCT2101 _Intermediate Financial Accounting 1_G-I_Ch.3_12-13 Feb
E3-9 Discontinued operations; disposal in subsequent year
Kandon Enterprises Ltd has two operating divisions, one manufactures machinery and the other
breeds and sells horses. Both divisions are considered separate components as defined by IFRS.
The horse division has been unprofitable, and on November 15, 2023, Kandon adopted a formal
plan to sell the division. The sale was completed on April 30, 2024. As at December 31, 2023,
the component was considered held for sale.
On December 31, 2023, the company’s financial year-end, the book value of the assets of the
horse division was $250,000. On that date, the fair value of the assets, less costs to sell, was
$200,000. The before-tax loss from operations of the division for the year was $140,000. The
company’s effective tax rate is 20%. The after-tax income from continuing operations for 2023
was $400,000.
Required:
1. Prepare a partial statement of profit or loss for 2023 beginning with income from continuing
operations. Ignore BPS disclosures.
2. Repeat requirement 1 assuming that the estimated net fair value of the horse division’s assets
was $400,000, instead of $200,000.