3594 Class 3 Self Practice Solution

BE 4.
11
a. Income from continuing operations = Income from operations + Gain on disposal

of FV-NI investments – Income tax on income from continuing operations = $220,000
+ $15,000 – $63,000 = $172,000
b. Net income = Income from continuing operations – Loss from operation of

discontinued division (net of tax) – Loss on disposal of discontinued division (net
of tax) = $172,000 – $42,000 – $75,000 = $55,000
c. Other comprehensive income = Unrealized holding gain – OCI (net of tax) = $12,000
d. Comprehensive = Net income + Other comprehensive income = $55,000 + $12,000

= $67,000
e. Under ASPE, other comprehensive income and comprehensive income do not exist
and therefore all impacts on comprehensive income in IFRS would be reported in
net income in ASPE. Investments that are not quoted in an active market are
accounted for at cost.
Copyright ©2022 John Wiley & Sons, Canada, Ltd.

BE 4.14
a. The $100,000 (net of tax) loss from operation of the discontinued division, and the
$200,000 (net of tax) loss on impairment of net assets of the discontinued division
should be shown in the discontinued operations section of the income statement
for the year ended December 31, 2023. The discontinued operations section follows
income from continuing operations. Under ASPE, the assets and liabilities related
to the discontinued manufacturing division should be segregated on the Statement
of Financial Position according to their nature (e.g. current assets related to the
discontinued manufacturing division should be presented as current assets held
for sale/related to discontinued operations, and noncurrent assets related to the
discontinued manufacturing division should be presented as noncurrent assets
held for sale/related to discontinued operations).
b. Under IFRS, the income statement presentation would be the same. However, on
the Statement of Financial Position, all assets and liabilities related to the
discontinued manufacturing division should be presented as held for sale, and
classified as current assets and current liabilities, respectively.

EXERCISE 4.1
Reach Out Card Company Limited

Statement of Comprehensive Income
For the Year Ended December 31, 2023
Sales revenue $1,200,000

Cost of goods sold 750,000
Gross profit 450,000
Operating expenses
Selling and administrative expenses 320,000
Income from operations 130,000
Gain on disposal of building 250,000
Net income 380,000
Other comprehensive income
Items that will not be recycled subsequently to
net income or loss:
Unrealized gain on FV-OCI investments 18,000
Comprehensive income $398,000

E 4.4
a. The income statement and related footnote are as follows:
Income from continuing operations before income tax1 $144,000

Income tax expense2 43,200
Income from continuing operations 100,800
Discontinued operations (Note XX)
Income from operations of the discontinued
Blue Division, less applicable
income tax of $1,8003
$4,200
Loss on impairment of assets of
discontinued operations, less applicable
income tax recovery of $6,0004 (14,000) (9,800)
Net income $91,000
Income from continuing operations before income tax:

1
Net income – given $91,000

Write down on assets 14,000
Operating income of Blue Division (4,200)
Income from continuing operations $100,800
÷ .70
Income from continuing operations before income tax $144,000
2
($144,000 x 30%)
3
($4,200 ÷ .7) x 30%
4
($25,000 - $5,000) x 30%

Note XX—Discontinued Operations. On October 5, 2023, the board of
directors decided to dispose of the Blue Division by auction.
(Note that earnings per share calculations are not required under ASPE)
b. The office equipment would be shown separately on the
Statement of Financial Position as part of noncurrent assets as
“noncurrent assets held for sale/related to discontinued
operations”. The assets would be valued at the lower of carrying
amount and fair value less costs to sell. In this case, this means
the office equipment would be remeasured to $5,000, which is its
estimated selling price, net of costs to sell.
c. Under IFRS, the office equipment should be presented as held for

sale and classified as current assets on the Statement of
Financial Position.
d. If Diamond did not have a formal plan in place to dispose of Blue

Division, Blue Division would not qualify for treatment as a
discontinued operation, and the related net loss (after tax) of
$9,800 should be included in income from continuing operations.
Based on that presentation and disclosure, an investor would
appropriately interpret that the net loss relates to operations that
are expected to continue.
Without a formal plan in place to dispose of the Blue Division,

presenting the Blue Division as a discontinued operation is not in
compliance with GAAP and it would not be faithfully
representative. Diamond’s quality of earnings would be low, as
loss/earnings related to operations that are expected to continue
would be inappropriately excluded from income from continuing
operations.

EXERCISE 4.13
Quality Fabrication Limited

Income Statement
Sales revenue
Sales revenue $1,120,000
Less: Sales returns and allowances $118,000
Sales discounts 40,000 158,000
Net sales revenue 962,000
Cost of goods sold 504,000

Gross profit 458,000
Operating expenses
Selling expenses 160,000
Administrative expenses 80,000
Depreciation expense 50,000 290,000
Income from operations 168,000

Other revenues and gains
Interest revenue 70,000
238,000
Other expenses and losses
Interest expense 50,000

Loss from storm damage 124,000
Income before income tax 64,000

Income tax expense1 16,000
Net income $ 48,000
Earnings per share2 $0.32
1
($64,000 x 25%)
2
($48,000 ÷ 150,000)

EXERCISE 4.15
Eddie Zambrano Corporation

Statement of Retained Earnings
Balance, January 1, as reported1 $225,000

Correction for depreciation error in 2021
(15,000)
(net of $10,0002 income tax recovery)
Retroactive adjustment for change in inventory
method (net of $14,0003 income tax) 21,000
Balance, January 1, as adjusted 231,000
Add net income4 144,000
375,000
Deduct dividends declared 100,000
Balance, December 31 $275,000
1
($40,000 + $125,000 + $160,000) – ($50,000 + $50,000)
2
($25,000 x 40%)
3
($35,000 x 40%)
4
[$240,000 – (40% X $240,000)]

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BE 4.

a. Income from continuing operations = Income from operations + Gain on disposal

b. Net income = Income from continuing operations – Loss from operation of

d. Comprehensive = Net income + Other comprehensive income = $55,000 + $12,000

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Reach Out Card Company Limited

Sales revenue $1,200,000

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

a. The income statement and related footnote are as follows:

Income from continuing operations before income tax1 $144,000

Income from continuing operations before income tax:

Net income – given $91,000

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

c. Under IFRS, the office equipment should be presented as held for

d. If Diamond did not have a formal plan in place to dispose of Blue

Without a formal plan in place to dispose of the Blue Division,

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Quality Fabrication Limited

Cost of goods sold 504,000

Income from operations 168,000

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Income before income tax 64,000

Net income $ 48,000

Earnings per share2 $0.32

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

Eddie Zambrano Corporation

Balance, January 1, as reported1 $225,000

Copyright ©2022 John Wiley & Sons, Canada, Ltd.

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