Question
The 31 December 20X2 year-end trial balance for Dynamics Ltd., a private company, showed the following account balances: Mytel Corporation owns and operates a variety
The 31 December 20X2 year-end trial balance for Dynamics Ltd., a private company, showed the following account balances:
Mytel Corporation owns and operates a variety of restaurants, hotels, and budget lodging. In June 20X8, the management of Mytel Corporation decided to sell off its budget lodging operations, as the rate of return on the divisions assets was lower than managements internal requirements. The division is reported as its own operating segment, and does not share costs with any other division. On 20 June 20X8, Mytel listed the budget lodging division for $11.70 million. Additional information relating to the budget lodging is as follows:
The budget lodging division earned $1,194,700 from 1 January 20X8 to 20 June 20X8, and $247,600 from 20 June 20X8 to 31 December 20X8 (figures reported before tax). The budget lodging division has an estimated fair value of $11.90 million. The carrying value of the division is $12.40 million. At first, Mytels management was not getting much interest in their properties and in October 20X9 they decided to hire an independent consultant to help with the sale. The consultant would charge 7.50% of the total purchase price. As of 31 December 20X8, the company was in the final negotiating stages with a buyer. Mytel has a tax rate of 20% and reports in accordance with IFRS. Required: 1. Determine whether the operation can be classified as a discontinued operation. 2. Calculate the gain (loss) on sale for the discontinued operation for 20X8
3. Assuming the division was sold for $12.50 million with taxes of $100,000 owing, calculate the amount to be shown in 20X9 earnings.
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