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Q2 (May 19)
CK Ltd. prepares the financial statement under Ind AS for the quarter year ended 30th June, 2018. During the
3 months ended 30th June, 2018 following events occurred:
On 1st April, 2018, the Company has decided to sell one of its divisions as a going concern following a recent
change in its geographical focus. The proposed sale would involve the buyer acquiring the non-monetary assets
(including goodwill) of the division, with the Company collecting any outstanding trade receivables relating to
the division and settling any current liabilities.
On 1st April, 2018, the carrying amount of the assets of the division were as follows:
Purchased Goodwill – Rs 60,000
Property, Plant & Equipment (average remaining estimated useful life two years) - Rs 20,00,000
Inventories - Rs 10,00,000
From 1st April, 2018, the Company has started to actively market the division and has received number of
serious enquiries. On 1st April, 2018 the directors estimated that they would receive Rs 32,00,000 from the
sale of the division. Since 1st April, 2018, market condition has improved and as on 1st August, 2018 the
Company received and accepted a firm offer to purchase the division for Rs 33,00,000.
The sale is expected to be completed on 30th September, 2018 and Rs 33,00,000 can be assumed to be a
reasonable estimate of the value of the division as on 30th June, 2018. During the period from 1st April to
30th June inventories of the division costing Rs 8,00,000 were sold for Rs 12,00,000. At 30th June, 2018, the
total cost of the inventories of the division was Rs 9,00,000. All of these inventories have an estimated net
realisable value that is in excess of their cost.
The Company has approached you to suggest how the proposed sale will be reported in the interim financial
statements for the quarter ended 30th June, 2018 giving relevant explanations.
Solution
The decision to offer the division for sale on 1st April, 2018 means that from that date the division has
been classified as held for sale. The division available for immediate sale is being actively marketed at a
reasonable price and the sale is expected to be completed within one year.
The consequence of this classification is that the assets of the division will be measured at the lower of
their existing carrying amounts and their fair value less cost to sell. Here the division shall be measured at
their existing carrying amount i.e. Rs 30,60,000 since it is less than the fair value less cost to sell Rs
32,00,000.
The increase in expected selling price will not be accounted for since earlier there was no impairment to
division held for sale.
The assets of the division need to be presented separately from other assets in the balance sheet. Their
major classes should be separately disclosed either on the face of the balance sheet or in the notes.
The Property, Plant and Equipment shall not be depreciated after 1st April, 2018 so its carrying value at
30th June, 2018 will be Rs 20,00,000 only. The inventories of the division will be shown at Rs 9,00,000.
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