Gain on the sale of the discontinued operation, Cost Accounting

NSC Ltd. has a 31 May fiscal year-end. NSC disposed of its Information Systems Group (ISG) on 31 January 20X3. ISG had a net loss (after taxes) of $37,700,000 in 20X3, to the date of disposal. The division was sold for $475,600,000 in cash plus future royalties through 31 May 20X4, which were guaranteed to be $30,000,000. The minimum guaranteed royalties were included in the computation of the 20X3 gain on the sale of the division. Actual royalties received in 20X4 were $35,500,000. Excerpts from comparative income statements found in the 31 May 20X4 financial statements are as follows:

($ millions) Year ended 31 May                                                                  20X4             20X3

Earnings (loss) from continuing operations                                                   $(29.3)          $(205.5)

Discontinued operations:

Gain on sale of discontinued operation (net of income taxes of $1.2 in 20X4 and $34.0 in 20X3)

                                                                                                             4.3               182.3

Net income (loss)                                                                                    $(25.0)         $ (23.2)


1.Determine the net book value of ISG at the date of disposal.

2.Why does NSC report a gain on the sale of the discontinued operation of $4,300,000 in the year ending 31 May 20X4?

3.NSC reports an after-tax loss from discontinued operations of $37,700,000 for the year ending 31 May 20X3. Over what period was the loss accrued?

Posted Date: 5/10/2013 1:59:50 AM | Location : United States

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