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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.
Answers submitted
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10206 |
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7866 |
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7862 |
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7860 |
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7870 |
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7864 |
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4027 |
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3599 |
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2627 |
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1190 |
20 |