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IFRS 5Case studies (Step 3 of 5)

Case study

Step 3 of 5
Professional fileIFRS 5L4 · Expert

File of a disposal project: classification, measurement of a group, discontinued operation and presentation

7 documents22 tasks≈ 300 min
0 / 28 items completed
Standards
IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Groupe Valérian (fictitious entity, water and beverages) prepares its consolidated IFRS financial statements at 31 December 20X6. The board has committed to a plan to dispose of its Water division, which includes goodwill, tangible and intangible assets, an investment property at fair value, receivables and payables. A filling line Y, classified as held for sale last year, is withdrawn from the plan. You prepare the file: classification, measurement, allocation of the loss, ceasing the classification of Y, discontinued operation, the 20X7 reversal and presentation. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Build the file: frame the scope; judge the classification of the division and the one-year period; deal with the missing information; judge the component and the discontinued operation; measure the group at the lower of; identify the items excluded from the allocation and allocate the loss (goodwill first); measure line Y on ceasing the classification; compute the single amount and the comparative; compute the capped reversal of 20X7; record the entries; present the effect, the presentation without offsetting and the disclosures; conclude.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

7 documents: open each one to read it.

Document 1Minutes

Minutes of the board

Minutes of the group's board: on 1 September 20X6, the board commits to a plan to dispose of the Water division; a broker is mandated, a sale file has been circulated since October and three potential buyers have given price indications. The division is available in its present condition. The asking price is 520,000 EUR for a reference fair value of 518,000 EUR; the sale is expected within 9 months.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Asking price of the division€520,000.00
Reference fair value of the division€518,000.00
Expected time to sell (in months)9 months
Goodwill of the division€50,000.00
Property, plant and equipment of the division€350,000.00
Intangible assets of the division€70,000.00
Investment property at fair value€100,000.00
Trade receivables of the division€80,000.00
Payables of the division€90,000.00
Fair value of the whole division€518,000.00
Broker's commission€12,000.00
Legal fees of the sale€8,000.00
Net fair value of the group at 30 June 20X7€580,000.00
Revenue of the division in 20X6€900,000.00
Expenses of the division in 20X6€790,000.00
Tax of the division in 20X6€30,000.00
Revenue of the division in 20X5€850,000.00
Expenses of the division in 20X5€760,000.00
Tax of the division in 20X5€27,000.00
Cost of line Y€240,000.00
Residual value of line Y€0.00
Depreciation period of line Y (in years)8 years
Carrying amount of Y in assets held for sale€150,000.00
Recoverable amount of Y at 31 December 20X6€130,000.00
Training budget 20X7€15,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort7

  • Minutes of the board

  • Carrying amounts of the division

  • Expert's reports

  • Income statement of the division

  • Record of filling line Y

  • Letter from the potential buyer

  • Training budget

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Frame the file: scope, standards and documents.

      2. Task 2Professional judgement

        Is the sale of the division highly probable and is the division available? Justify.

      3. Task 3Missing information

        What information is missing and how should it be dealt with?

      4. Task 4Professional judgement

        Is the sale expected within one year? Justify.

      5. Task 5Professional judgement

        Is the division a component and a discontinued operation? Justify.

      6. Task 6Calculation

        Add up the costs to sell.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Add up the costs to sell.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Compute fair value less costs to sell.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute fair value less costs to sell.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Calculation

        Compute total assets and the carrying amount of the group.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute total assets and the carrying amount of the group.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Carrying amount of the group

      9. Task 9Calculation

        Determine the amount measured for the group (lower of the two bases).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Determine the amount measured for the group (lower of the two bases).

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Professional judgement

        Which items of the group are excluded from the allocation (IAS 40, IFRS 9) and which order applies (IAS 36)?

      11. Task 11Calculation

        Compute the loss of the group and allocate it.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the loss of the group and allocate it.

        1. €
        2. €
        3. €
        4. €
        5. €

        Checks

        • 0 / 5 steps entered
        • Amounts readable

        Result: Share allocated to intangible assets

      12. Task 12Calculation

        Compute the annual depreciation of line Y.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the annual depreciation of line Y.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Calculation

        Compute the adjusted carrying amount of Y.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the adjusted carrying amount of Y.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Calculation

        Compute the amount measured for Y on ceasing the classification.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the amount measured for Y on ceasing the classification.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      15. Task 15Calculation

        Compute the post-tax result of the division for 20X6 and 20X5.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the post-tax result of the division for 20X6 and 20X5.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Post-tax result of the division in 20X5

      16. Task 16Calculation

        Compute the single amount for 20X6 and that of the comparative.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the single amount for 20X6 and that of the comparative.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Single amount of the restated 20X5 comparative

      17. Task 17Calculation

        Compute the reversal at 30 June 20X7 (file convention: no gain is allocated to goodwill).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the reversal at 30 June 20X7 (file convention: no gain is allocated to goodwill).

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Reversal limited to the cumulative loss excluding goodwill (file convention)

      18. Task 18Journal entries

        Record the 20X6 transactions.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 5

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 5

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 3 · Journal entry · Journal entries

        Entry 3 of 5

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 4 · Journal entry · Journal entries

        Entry 4 of 5

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 5 · Journal entry · Journal entries

        Entry 5 of 5

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      19. Task 19Effects on the financial statements

        What is their effect on the 20X6 financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      20. Task 20Journal entries

        Record the 20X7 reversal.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      21. Task 21Analysis

        How should the assets and liabilities of the group, the single amount, its analysis and the comparatives be presented?

      22. Task 22Conclusion

        Write the conclusion of the file.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReviewer note: justify goodwill reduced first and the absence of a floor
      • BlockingResolvedReviewer note: justify the amount measured for Y on ceasing the classification
      • Non-blockingOpenReviewer note: detail the analysis of the single amount in the notes

      Information requests

      • ObtainedRequest to the buyer: confirmation of the timetable
      • Assumption documentedTax effect: documented assumption

      Completion checklist

      • Classification criteria documentedDone
      • Group measured as a wholeDone
      • Loss allocated in the order adoptedDone
      • Single amount and comparatives computedDone
      • Disclosures in the notes to reviewTo review
      • Cash flows of the discontinued operationNot applicable

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 28).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 5 §5
      • IFRS 5 §8
      • IFRS 5 §15
      • IFRS 5 §20
      • IFRS 5 §21
      • IFRS 5 §22
      • IFRS 5 §23
      • IFRS 5 §27
      • IFRS 5 §32
      • IFRS 5 §33
      • IFRS 5 §34
      • IFRS 5 §38