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Greenwood is a public listed company. On 31 March 20X7 Greenwood sold its 80% -owned subsidiary – Deadwood -  for $6 million. The directors have been advised that the disposal qualifies as a discontinued operation and it has been accounted for accordingly. The disposal proceeds were not collected until after the year end.

Extracts from Greenwood's financial statements are set out below.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MARCH

  2007 2006
    $'000 $'000
  Revenue 27,500 21,200
  Cost of sales -19,500 -15,000
    ––––––– –––––––
  Gross profit 8,000 6,200
  Operating expenses -2,900 -2,450
    ––––––– –––––––
    5,100 3,750
  Finance costs -600 -250
    ––––––– –––––––
  Profit before taxation 4,500 3,500
  Income tax expense -1,000 -800
    ––––––– –––––––
  Profit for the period from
continuing operations
3,500 2,700
  Profit/(Loss) from
discontinued operations
-1,500 320
    ––––––– –––––––
  Profit for the period 2,000 3,020
    ––––––– –––––––
  Analysis of discontinued operations    
  Revenue 7,500 9,000
  Cost of sales -8,500 -8,000
    ––––––– –––––––
  Gross profit/(loss) -1,000 1,000
  Operating expenses -400 -550
    ––––––– –––––––
  Profit/(loss) before tax -1,400 450
  Tax (expense)/relief 300 -130
    ––––––– –––––––
    -1,100 320
       
  Loss on measurement
to fair value of disposal group
-500
  Tax relief on disposal group 100
    ––––––– –––––––
  Profit/(Loss) from discontinued operations -1,500 320
    ––––––– –––––––

 

STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH

    2007 2006
    $'000 $'000 $'000 $'000
  Non-current assets   17,500   17,600
        1,500
  Current assets        
  Inventory 1,500   1,350  
  Trade receivables 2,000   2,300  
  Bank Nil   50  
  Assets held for sale
(at fair value)
6,000 9,500 Nil 3,700
    ––––––– ––––––– ––––––– –––––––
  Total assets   27,000   22,800
      –––––––   –––––––
  Equity and liabilities        
  Equity shares of $1 each   10,000   10,000
  Retained earnings   4,500   2,750
      –––––––   –––––––
      14,500   12,750
Non -controlling interest       1,250
        –––––––
        14,000
  Non-current liabilities        
  5% loan notes   8,000   5,000
  Current liabilities        
  Bank overdraft 1,150   Nil  
  Trade payables 2,400   2,800  
  Current tax payable 950 4,500 1,000 3,800
    ––––––– ––––––– ––––––– –––––––
  Total equity and liabilities   27,000   22,800
      –––––––   –––––––

Note: the carrying amount of the assets of Deadwood at 31 March 20X6 was $6·25 million. Greenwood measures non-controlling interest at share of net assets.

Requirements:

Required

Analyse the financial performance and position of Greenwood for the two years ended 31 March 20X7.  (Ignore working capital and gearing).

Note: Your analysis should be supported by appropriate ratios (up to 6 marks available) and refer to the effects of the disposal.

Marks: 20

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