(a) Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation is justifiable. (b) Assuming the closure of the travel agencies is a discontinued operation, prepare the (summarized) income statement of Partway for the year ended 31 October 2006 together with its comparatives.
(a) Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation is justifiable. (b) Assuming the closure of the travel agencies is a discontinued operation, prepare the (summarized) income statement of Partway for the year ended 31 October 2006 together with its comparatives.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Q6: Partway is in the process of preparing its financial statements for the year ended 31 October
2006. The company's main activity is in the travel industry mainly selling package holidays (flights and
accommodation) to the general public through the Internet and retail travel agencies. During the
current year the number of holidays sold by travel agencies declined dramatically and the directors
decided at a board meeting on 15 October 2006 to cease marketing holidays through its chain of travel
agents and sell off the related high-street premises. Immediately after the meeting the travel agencies'
staff and suppliers were notified of the situation and an announcement was made in the press. The
directors wish to show the travel agencies' results as a discontinued operation in the financial
statements to 31 October 2006. Due to the declining business of the travel agents, on 11 August 2006
(three months before the year-end) Partway expanded its Internet operations to offer car hire facilities
to purchasers of its Internet holidays
The following are Partway's summarized income statement results - years ended: -
-----------31 October 2006--
31 Oct 2005
Internet
Travel agencies
Car hire
Total
Total
Revenue
23000
14000
2000
39000
40000
Cost of sales
(18000)
(16500)
(1500)
(36000)
(32000)
Gross Profit/(loss)
(2500)
(1500)
(4000)
5000
500
3000
8000
Operating Expenses
Profit/(Loss) Before
(1000)
(100)
(2600)
(2000)
4000
400
400
6000
tax
The results for the travel agencies for the year ended 31 October 2005 were: revenue $18 million, cost
of sales $15 million and operating expenses of $1.5 million.
Required:
79
(a) Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation
is justifiable.
(b) Assuming the closure of the travel agencies is a discontinued operation, prepare the (summarized)
income statement of Partway for the year ended 31 October 2006 together with its comparatives.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5d270e40-004a-464c-90bc-bac811d081ba%2F8de0d09b-76cd-4d5b-b6a9-12e7d679c14f%2Fhlvlni_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Q6: Partway is in the process of preparing its financial statements for the year ended 31 October
2006. The company's main activity is in the travel industry mainly selling package holidays (flights and
accommodation) to the general public through the Internet and retail travel agencies. During the
current year the number of holidays sold by travel agencies declined dramatically and the directors
decided at a board meeting on 15 October 2006 to cease marketing holidays through its chain of travel
agents and sell off the related high-street premises. Immediately after the meeting the travel agencies'
staff and suppliers were notified of the situation and an announcement was made in the press. The
directors wish to show the travel agencies' results as a discontinued operation in the financial
statements to 31 October 2006. Due to the declining business of the travel agents, on 11 August 2006
(three months before the year-end) Partway expanded its Internet operations to offer car hire facilities
to purchasers of its Internet holidays
The following are Partway's summarized income statement results - years ended: -
-----------31 October 2006--
31 Oct 2005
Internet
Travel agencies
Car hire
Total
Total
Revenue
23000
14000
2000
39000
40000
Cost of sales
(18000)
(16500)
(1500)
(36000)
(32000)
Gross Profit/(loss)
(2500)
(1500)
(4000)
5000
500
3000
8000
Operating Expenses
Profit/(Loss) Before
(1000)
(100)
(2600)
(2000)
4000
400
400
6000
tax
The results for the travel agencies for the year ended 31 October 2005 were: revenue $18 million, cost
of sales $15 million and operating expenses of $1.5 million.
Required:
79
(a) Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation
is justifiable.
(b) Assuming the closure of the travel agencies is a discontinued operation, prepare the (summarized)
income statement of Partway for the year ended 31 October 2006 together with its comparatives.
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