Global Industries Limited (GIL) is in the process of preparing its financial statements for the year ended
Question:
Global Industries Limited (GIL) is in the process of preparing its financial statements for the year ended 31 October 2019. The company's main activity is in the processed food industries, selling processed coffee (Coffee Division) and processed fruits (Fruits Division) as separate business lines.
During the current year the quantity of coffee sold declined dramatically and the directors decided at a board meeting on 15 October 2019 to cease the production and sale of processed coffee and to sell off the related facilities. Immediately after the meeting the coffee processing staff and suppliers were notified of the situation and an announcement was made in the press.
The directors wish to show the Coffee Division's results as a discontinued operation in the financial statements to 31 October 2019. Due to the declining business of the Coffee Division, on 1 August 2019 (three months before the year-end) GIL expanded its operations to offer a farm equipment rental service to local farmers called Agro-Rentals
The following are GIL’s summarized income statement results, for the year ended 31 October 2019:
31 October 2019 | 31 October 2010 | ||||
Fruits Division | Coffee Division | Agro-Rentals | Total | ||
$ | $ | $ | $ | $ | |
Revenue | 69,000 | 42,000 | 6,000 | 117,000 | 120000 |
Cost of sales | (54,000) | (49,500) | (4,500) | (108,000) | (96,000) |
Gross Profit/loss | 15,000 | (7,500) | 1,500 | 9,000 | 24,000 |
Operating expenses | (3,000) | (4,500) | (300) | (7,800) | (6,000) |
Profit/(loss) before tax | 12,000 | (12,000) | 1200 | 1200 | 18,000 |
The results for the Coffee Division for the year ended 31 October 2018 were: revenue $54 million, cost of sales $45 million and operating expenses of $ 4.5 million.
Required
(i) Discuss whether the directors' wish to show the Coffee Division’s results as a discontinued operation is justifiable.
(ii) Assuming the closure of the Coffee Division is a discontinued operation, prepare the (summarized) income statement of Global Industries Limited for the year ended 31 October 2019 together with its comparatives.
Expert Answer:
ANSWER 1 Discontinued operations is an accounting term for parts of a firms operations that have been divested or shut down They are reported on the i... View the full answer
