[yhe1223]

On December 1, year 2, Shine Co. agreed to sell a business segment on March 1, year 3. Throughout year 2, the segment had operating losses that were expected to continue until the segment’s disposition. However, the gain on disposition was expected to exceed the segment’s total operating losses in year 2 and year 3. The amount of estimated net gain from disposal recognized in year 2 equals

Zero.

The entire estimated net gain.

All of the segment’s year 2 operating losses.

The segment’s December year 2 operating losses.

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[M.O.D.]

I thought income/loss from discontinued operations and loss/gain on disposal of discontinued operations are two different line items under extraordinary items (ie they are not combined).

So operations in year 2 would show a loss, and there would not even be an item for disposal, since it is disposed in year 3, thus zero.

And in any case, the gain is only realized in year 3 when actually sold. So how could there be any gain in year 2?

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[stoleway]

Asset will be recognized as available for sale until its disposed.

Under Gaap, you cannot recognise a gain contigency but disclosure is required.

Since disposal will not occur until year 3, answer is zero.

I stand to be corrected since im losing some of the FAR knowledge very quickly…lol

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Anonymous]

It's my understanding that the answer is “all of the segment's year 2 operating losses”, but i was confused by contradictory information on this topic

[stoleway]

@anjanja…

The operating losses will be reported net of tax under discontinued operations in yr2 but the keyword in the question is DISPOSAL, even though you can estimate gain contingencies, Gaap prohibits the recognition of these gains.

Remember you can recognize loss contingencies if they are probable and can be reasonably estimated.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Anonymous]

well that's the whole new level of rtmfq

[nicole2035]

Just to jump off what others have said:

You never recognize gains, revenue etc until the period it is realized or realizable. So that means you don't record until the actual exchange of goods&cash happens, or when you have earned the revenue and have claim to it.

The point of the question is if you know the rules for recognition for disposal of an asset is the same as any other disposal/sale you would do.

[Author]

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