[porkburrito]

Hi everyone, I feel like this is an easy question but I just can’t wrap my head around it…The explanation is not very helpful.

Question #1017 – A segment of Ace, Inc., was discontinued during the current year. In comparative financial statements for the previous year, Ace’s loss on disposal should
A. Exclude comparative financial statements for contingent product warranty obligation costs.
B. Include operating losses during the current fiscal year.
C. Exclude additional pension costs associated with the decision to dispose.
D. Include operating losses of the previous fiscal year up to the date a disposal plan was adopted.

The correct answer is D. I don’t know why the loss of disposal should include operating losses to start with; aren’t impairment loss, G/L from actual operations, and G/L on disposal the three elements that make up Gain/Loss from Discontinued Operations?

If operating losses were indeed included, then why do we include operating losses of previous FY up o the date a disposal plan was adopted?

Thanks so much in advance!

[water]

I believe because it asks for comparative F/S, and the answer implies that the measurement date is prior year. So prior year's operating losses up to the measurement date (date plan is adopted) would be classified under “loss on disposal” for consistency. Also associated pension and contingent warranties associated with the disc op should be included.

[porkburrito]

@Water – thanks! But shouldn't the operational loss be from the entire year instead of up to a certain point? I believe that no matter when the disposal plan is adopted in a year, the operations loss/gain refers to the loss/gain for that entire year.

[Author]

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