INCOME_FROM_CONTINUED_DISCONTINUED_OPERATIONS_no_headers.pptx

discontinued business

1. INCOME FROM CONTINUED & DISCONTINUED OPERATIONS

2. LEARNING OUTCOME Identify and analyse statement of income from continued operations and discontinued operations based on their elements

3. INCOME FROM CONTINUED OPERATIONS

4. CONCEPT Net income from continuing operations is a line item on the income statement that notes the after-tax earnings that a business has generated from its operational activities. It is also known as operating income.

5. UNDERSTANDING INCOME FROM CONTINUED OPERATIONS

6. CASELET

7. ‘‘ Saltattire ’ company manufactures a private and casual clothing and also sells an expensive piece of machinery during the year 2020. Assume that it makes profit on sale of a machinery. Discuss whether it shows the operational efficiency of the company? Yes, by earning profits, company financial position improves. No, as machinery sale is an unusual item that is not directly related to daily business operations. Income earned from the equipment sale is part of the profit margin, but selling assets is not a sustainable way to generate profits. Yes, as machinery sale is a usual item that is directly related to daily business operations. Income earned from the equipment sale is part of the profit margin, and selling assets is very much a sustainable way to generate profits. No, as company may have some depreciation to adjust during sale of asset which may reduce profitability.

8. ‘Salttaire’ company manufactures a private and casual clothing and also sells an expensive piece of machinery during the year 2020. Assume that it makes profit on sale of a machinery. Discuss whether it shows the operational efficiency of the company? Yes, by earning profits, company financial position improves. No, as machinery sale is an unusual item that is not directly related to daily business operations. Income earned from the equipment sale is part of the profit margin, but selling assets is not a sustainable way to generate profits. Yes, as machinery sale is a usual item that is directly related to daily business operations. Income earned from the equipment sale is part of the profit margin, and selling assets is very much a sustainable way to generate profits. No, as company may have some depreciation to adjust during sale of asset which may reduce profitability.

9. Calculate income from continuing operations of ‘ Saltattire ’ company? How can you compute net income of company?

10. Sales - Cost of sales (material and labor costs to manufacture clothing) = Gross profit Wages, supplies, lease expenses, and other operating expenses are subtracted from gross profit to arrive at income from continuing operations. Additional revenue and expenses come after income from continuing operations, along with income taxes. The remaining balance is the company's net income.

11. Assume that a company reports Rs. 1,80,000 of sales, Rs.80,000 cost of goods sold, and Rs. 15,000 of operating expenses. What shall be its income from operations? a) Rs. 80,000 b) Rs. 1,00,000 c) Rs. 1,80,000 d) Rs. 85,000

12. Assume that a company reports Rs. 1,80,000 of sales, Rs.80,000 cost of goods sold, and Rs. 15,000 of operating expenses. What shall be its income from operations? a) Rs. 80,000 b) Rs. 1,00,000 c) Rs. 1,80,000 d) Rs. 85,000 [1,80,000-80,000-15,000]

13. KINDLY NOTE THE FIGURES FOR SITUATION BASED ANALYTICAL QUESTIONS

14. A toy manufacturing company as on 1 st April 2020 has Opening stock of inventory = Rs. 76,250; Purchases = Rs. 3,15,250; Carriage = Rs. 2,000; Wages = Rs. 5,000; Sales = Rs. 5,00,000; Closing stock = Rs. 98,500; Administrative expenses = Rs. 1,00,000; Selling & Distribution Charges = Rs. 20,000; Other non-operating expenses = Rs. 2,000; Non-operating Incomes = Rs. 6,000.

15. What will be Cost of Goods Sold? a) Rs. 2,00,000 b) Rs. 2,05,000 c) Rs. 2,07,000 c) Rs. 1,00,000

16. What will be Cost of Goods Sold? a) Rs. 3,00,000 b) Rs. 2,05,000 c) Rs. 2,07,000 c) Rs. 1,00,000

17. What will be the Income from continuing business of toy manufacturing? a) Rs. 78,000 b) Rs. 84,000 c) Rs. 86,000 c) Rs. 1,00,000

18. What will be the Income from continuing business of toy manufacturing? a) Rs. 78,000 b ) Rs. 84,000 c) Rs. 86,000 c) Rs. 1,00,000

19. What will be the total operating expenses? a) Rs. 1,00,000 b) Rs. 1,20,000 c) Rs. 2,20,000 c) Rs. 80,000

20. What will be the total operating expenses? a) Rs. 1,00,000 b) Rs. 1,20,000 c) Rs. 2,20,000 c) Rs. 80,000

21. Identify which of the following is not an administrative expense? a) Rent b) Insurance c) Legal expenses d) Travelling expenses

22. Identify which of the following is not an administrative expense? a) Rent b) Insurance c) Legal expenses d) Travelling expenses

23. INCOME FROM DISCONTINUED OPERATIONS

24. In financial accounting, discontinued operations refer to parts of a company’s core business or product line that have been divested or shut down and that are reported separately from continuing operations on the income statement.

25. SITUATION ANALYSIS Company C has income from continuing operations of USD 700 million. During the year it disposed-off one of its segments Segment A for USD 120 million. The segment earned revenue of USD 200 million and incurred costs of USD 150 million. Its book value was USD 100 million. Tax rate applicable to the company overall and the segment is 35%. Present net income for the period for the company. Calculate Net Income for the Period.

26. HINTS! a) $700 b) $ 32.5 c) $ 739.5 d) $ 13

27. a) $700 b) $ 32.5 c) $ 739.5 d) $ 13

28. International financial reporting standards (IFRS) treatment A discontinued operation must meet two criteria. First, the asset or business component must be disposed of or reported as being held for sale. Second, the component must be distinguishable as a separate business that is being removed from operation intentionally or a subsidiary of a component being held with the intent to sell.

29. NET INCOME FROM DISCONTINUED OPERATIONS The amount shown on the income statement under discontinued operations is the profit or loss made during the current period from business lines or units that will not be a part of the company in the future.

30. Case: A company sells 20 different models of telephones, and the products are divided into 2 separate business units: Rotary Phone Business Unit and the Wireless Phone Business Unit. Each of the business units sells 10 models of telephones, and each model is clearly defined into their respective business units. The telephone industry has advanced greatly over the years, and the company has experienced a major decline in sales as well as deteriorating profit margins within the Rotary Phone Business Unit. This is attributed to aging technology, and the fact that wireless phone technology has become much more affordable to the overall market.

31. As a result, the board of directors and management of the company have decided to sell or dispose of all aspects of the Rotary Phone Business Unit. They’ve made the strategic decision to only focus on the Wireless Phone Business Unit, and all aspects of Rotary Phone Business Unit, including all 10 models of telephones within the business unit are considered discontinued. The company will disclose this information within the financial statements, and the company will clearly define all financial impacts of the Rotary Phone Business Unit within the discontinued activities section of the financial statements (including impacts to the Balance Sheet and Profit and Loss statement).  

32. HUL Income statement shows gross profit earned, its operating and non-operating expenses. Always remember higher expenses than earning is always adverse for a business and challenges its sustainability and survival HUL INCOME STATEMENT EXTRACTED