Question
In November 2025 the board of Kestrel Group committed to a plan to sell its retail division. At December 31, 2025 the division met all IFRS 5 criteria to be classified as held for sale and reported as a discontinued operation. The following information relates to 2025.
Continuing operations (for the year ended December 31, 2025):
| Item | Amount |
|---|
| Sales Revenue | $620,000 |
| Cost of Goods Sold | 372,000 |
| Selling Expenses | 84,000 |
| Administrative Expenses | 62,000 |
| Interest Expense | 6,000 |
Balances at December 31, 2025:
| Account | Amount |
|---|
| Cash | 28,000 |
| Accounts Receivable | 46,000 |
| Inventory | 51,000 |
| Carrying amount of the retail division's assets | 65,000 |
| Liabilities of the retail division | 21,000 |
| Equipment | 240,000 |
| Accumulated Depreciation - Equipment | 85,000 |
| Accounts Payable | 39,000 |
| Income Taxes Payable | 8,000 |
| Bonds Payable (due 2030) | 70,000 |
| Share Capital - Ordinary | 120,000 |
| Retained Earnings (January 1, 2025) | 39,000 |
Additional information:
- The income tax rate is 25% on all items.
- The retail division's pre-tax operating loss for 2025 was $16,000. Present it net of tax as a discontinued operation.
- The division's carrying amount is below fair value less costs to sell, so no impairment arises on classification. Present its assets and the directly associated liabilities as separate single lines within current assets and current liabilities (IFRS 5).
- 60,000 ordinary shares were outstanding throughout the year; present basic earnings per share for continuing operations and for net income (IAS 33.66).
- Dividends of $12,000 were declared and paid during 2025.
- The continuing-operations amounts above exclude the retail division.
Instructions:
- Prepare a multi-step income statement for the year ended December 31, 2025, presenting the discontinued operation net of tax and basic earnings per share.
- Prepare a classified statement of financial position at December 31, 2025. (Retained earnings must be updated for net income and dividends.)
Statements in this challenge
- Income StatementIncome Statement
- Statement of Financial PositionBalance Sheet
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations
A discontinued operation is presented as a single net-of-tax amount on the face of the income statement, separately from continuing operations, with comparatives re-presented on the same basis. Confirm the component meets the definition before separating anything.
Common mistakes
- Leaving the discontinued result inside continuing operations line by line instead of presenting one net figure.
- Presenting the amount gross when IFRS 5 requires it net of tax.
- Failing to re-present the comparative period on the same basis.
Further readingIFRS 5: held for sale and discontinued operations