On September 1, 2018, Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division. This division qualifies as a component of the entity according to GAAP regarding discontinued operations. The division's contribution to Jacob's operating income for 2018 was a $3 million loss before taxes. Jacob has an average tax rate of 30%.
Scenario:
Assume that Jacob had not yet sold the division's assets by the end of 2018. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2018, was $24 million and was expected to remain the same when the assets are sold in 2019. The book value of the division's assets was $19 million at the end of 2018.
Required:
Under these assumptions, what would Jacob report in its 2018 income statement regarding the office equipment division?

Answer

INCOME STATEMENT

Other Incomes

Fair value gain on assets held for sale of $5 million

Explanation:

fair value gain = fair value less costs to sell - book value

                        =$24mil - $19 mil

                        = $5 mil

The assumptions only relate to the assets held for sale's fair value and whether they are still held for sale on 31 Dec 2018 or not but the income statement will also reflect the contributions from the discontinued operations as a separate line item net of tax just below the net income from continued operations.

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