Grape-to-Gullet Ltd. (GTG) has operated a vertically integrated wine business for a number of years. It owns vineyards in Ontario and British Columbia, and it uses the grapes in its own wine-fermentation facilities. It then sells the wine through the company’s own chain of retail outlets. GTG’s year end is June 30, and the company prepares its financial statements in accordance with ASPE. The audited income statement for the year ended June 30, 2019, along with the draft figures for the year ended June 30, 2020, are as follows:

 For several years, GTG’s wine retailing business has faced severe competition; it incurred an operating loss for the year ended June 30, 2020. The directors decided in July 2019 to sell the wine retailing business. A binding sales agreement was entered into in November 2019 and the sale was completed on December 31, 2019, for $4,600,000. The assets, liabilities, revenue, and costs of the wine retailing business are separately distinguishable and form a separate component of the business. The figures for the wine retailing business included in the above statements of comprehensive income are as follows:

 The carrying value of the assets of the wine retailing business on December 31, 2019, equalled $4,320,000. The company had no liabilities relating to the wine retailing business. The proceeds of the sale were recorded by debiting cash $4,600,000 and crediting an account called suspense. This suspense account is not reflected in the above income statement. Assume there will be no tax payable regarding the disposal of the wine retailing operation. GTG’s tax rate is 28%.

Required:
a) Prepare an updated income statement of GTG (including comparatives) for the year ended June 30, 2020.
b) Prepare a suitable disclosure note relating to the discontinuance of the wine retailing business.
 

Transcribed Image Text:

(in '000s) Revenue Cost of goods sold Gross profit Distribution costs Administrative expenses Operating income Interest expense Income before tax Tax expense Net income for the year June 2020 (draft) $21,000 (15,000) 6,000 (250) (1,680) 4,070 (530) 3,540 (1,093) $ 2,447 June 2019 (audited) $20,000 (13,500) 6,500 (200) (900) 5,400 (310) 5,090 (1,490) $3,600 (in '000s) Revenue Cost of goods sold Gross profit Distribution costs Administrative expenses Operating income Interest expense Income before tax Tax expense Net income for the year June 2020 (draft) $21,000 (15,000) 6,000 (250) (1,680) 4,070 (530) 3,540 (1,093) $ 2,447 June 2019 (audited) $20,000 (13,500) 6,500 (200) (900) 5,400 (310) 5,090 (1,490) $3,600

Answer rating: 100% (QA)

Below is a concise analysis based on the provided financial information for GrapetoGullet Ltd GTG Re... View the full answer