Project Three: Diversified Holdings

Background

Diversified Holdings Inc. (DHI), a calendar-year company, operates three separate businesses. In September 2016, DHI decided to sell its candy segment because its revenues and earnings were declining due to health-conscious consumers. The Chocolate House (TCH) subsidiary represents the entire candy segment. You have been asked to help determine the appropriate accounting treatment related to this decision. In your analysis, you should consider the following additional information:

?DHI engaged a broker to help determine the value of the candy segment and to help locate a buyer. The broker indicated that given the age of the property, plant and equipment, the candy segment likely could be sold in less than a year if the offering price was $200 million.

?This offering price would also allow DHI to fully recover the cost of TCH's inventory. DHI considered this a reasonable value for these operations. DHI obtained Board approval to sell TCH for $200 million in November 2016.

?The Board was informed that the estimated cost of selling TCH was $10 million.

?On December 1, 2016, DHI publicly announced its intention to dispose of its candy segment. At this time, DHI informed the broker that TCH was available for immediate sale. Prior to year-end, the broker was actively seeking buyers.

?Management has concluded that TCH should be accounted for as a discontinued operation.

?Relevant financial information as of December 31 is provided on the following page for DHI and TCH.

?All intercompany eliminations are already reflected in DHI's consolidated financial information. The effective income tax rate in both 2015 and 2016 is 50%. For purposes of this analysis, do not consider any required segment disclosures.

Required

?Provide the journal entries required for TCH's remeasurement.

?Draft revisions to the comparative consolidated financial statements assuming DHI reports using US GAAP.

?Draft revisions to the comparative consolidated financial statements assuming DHI reports using IFRS.

?Considering the above analyses in the previous requirements, explain if US GAAP or IFRS provides better information about discontinued operations for users of the financial statements.

Project Three: Diversified Holdings Background Diversified Holdings Inc. (DHI), a calendar-year company, operates three separate businesses. In September 2016, DHI decided to sell its candy segment because its revenues and earnings were declining due to health-conscious consumers. The Chocolate House (TCH) subsidiary represents the entire candy segment. You have been asked to help determine the appropriate accounting treatment related to this decision. In your analysis, you should consider the following additional information: DHI engaged a broker to help determine the value of the candy segment and to help locate a buyer. The broker indicated that given the age of the property, plant and equipment, the candy segment likely could be sold in less than a year if the offering price was $200 million. This offering price would also allow DHI to fully recover the cost of TCH's inventory. DHI considered this a reasonable value for these operations. DHI obtained Board approval to sell TCH for $200 million in November 2016. The Board was informed that the estimated cost of selling TCH was $10 million. On December 1, 2016, DHI publicly announced its intention to dispose of its candy segment. At this time, DHI informed the broker that TCH was available for immediate sale. Prior to year-end, the broker was actively seeking buyers. Management has concluded that TCH should be accounted for as a discontinued operation. Relevant financial information as of December 31 is provided on the following page for DHI and TCH. All intercompany eliminations are already reflected in DHI's consolidated financial information. The effective income tax rate in both 2015 and 2016 is 50%. For purposes of this analysis, do not consider any required segment disclosures. Required Provide the journal entries required for TCH's remeasurement. Draft revisions to the comparative consolidated financial statements assuming DHI reports using US GAAP. Draft revisions to the comparative consolidated financial statements assuming DHI reports using IFRS. Considering the above analyses in the previous requirements, explain if US GAAP or IFRS provides better information about discontinued operations for users of the financial statements. Balance sheet Cash Inventory PP&E Liabilities Equity Income statement Revenue Expenses (All $ amounts in millions) Consolidated DHI 2016 2015 $ 20 $ 30 360 380 450 460 100 90 730 780 1,700 (1,400) Pretax income (loss) Income tax expense (benefit) Net income (loss) Cash flows Operating activities Investing activities Financing activities Beginning cash Ending cash (Source: Ernst & Young) TCH 2016 $ (30) 80 200 20 230 1,750 (1,350) 2015 $ 10 50 210 20 250 500 (540) 600 (580) 300 400 (40) 20 (150) (200) 20 (10) $ 150 $ 200 $ (20) $ 10 $ 150 (100) (60) 30 $ 200 (120) (100) 50 $ (20) - (20) 10 $ 10 (10) (10) 20 $ 20 $ 30 $ (30) $ 10