[TheGoodCPA]

On July 1, Year 1, the board of directors of All Seasons Sports, Inc. voted to dispose of the Ski & Snowboard operating segment of the company. On that date, the carrying value of the segment was $3,000,000, but the Board believed that it could sell the segment for no more than $2,500,000. The company was committed to its plan to sell the segment and was actively looking for a buyer until April 1, Year 2, when the division was sold to We Love Winter, Inc. for a sales price of $3,200,000. All Seasons Sports paid a brokers fee of 10% of the sales price when the transaction was closed.

Ski & Snowboard’s operating results were as follows:

1/1/Year 1 – 6/30/Year 1 ($300,000)

7/1/Year 1 – 12/31/Year 1 ($400,000)

1/1/Year 2 – 3/31/Year 2 ($200,000)

All Seasons Sports has a tax rate of 30%.

Calculate the Gain/(Loss) from Discontinued Operations for Year 1 and Year 2:

**The answer for year 1 impairment loss is (590,000) which I understand, but year 2 Impairment loss is 0. Why is that? Thanks all!

AUD - 83
BEC - 81
FAR - 77
REG - 77

*Prays to the CPA Gods*

AUD - 83 (5/13/16)
FAR - 77 (7/20/16)
BEC - (8/12/16)
REG - (10/15/16)

[Spartan15]

I think you meant to write impairment loss is $500,000 (not 590,000) for year 1?

But regardless, you are only recording an impairment loss in year 1 because that is when the discounted operation was held for sale. You don't record an impairment loss in the second year because that is when it is sold so you just record a gain or loss.

Additionally as a practical note, the FV of the discontinued operation went up from $2.5 to $3.2 mil from year 1 to year 2, so you wouldn't be able to impair an asset that has appreciated in value.

AUD - 99
BEC - 96
REG - 92
FAR -

[Excel14]

To add to Soartan's comments, according to GAAP you are required to measure the segment at the lower of the carrying amount or fair value minus cost to sell, at the moment the segment is classified as held for sale. That date was 07, Yr 1 in your question. Since the question is specifically asking only for “impairment loss”, the operating losses aren't considered. In Yr 2, the lower of the carrying amount or fair value minus cost to sell is the 2,500,000 from Yr 1 write down, so you don't have any further impairment. Now if the question had asked for “operating losses”, the full $900,000 x .70 ($630,000) would be the answer.

What do they call an accounting person, who only managed a 75 on all four parts of the CPA exam....you got it, CPA!!!

BEC (2/28/16) ----- 78
FAR (09/10/16)-----
AUD
REG

CIA, CGAP, CFE

[TheGoodCPA]

Ahh yes, sorry about the typo the year 1's impairment loss is 500,000. And thank you guys so much!

AUD - 83
BEC - 81
FAR - 77
REG - 77

*Prays to the CPA Gods*

AUD - 83 (5/13/16)
FAR - 77 (7/20/16)
BEC - (8/12/16)
REG - (10/15/16)

[Author]

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