Facts
Lynch, a parent entity, approved on June 30, 20X5, a plan to sell its subsidiary, Pin. The sale is expected to be completed on September 1, 20X5. The year end of Lynch is July 31, 20X5, and the financial statements were approved on August 16, 20X5. The subsidiary had net assets of $15 million (including goodwill of $2 million) at carrying value at year end. Pin made a loss of $3 million from August 1 to August 16, 20X5, and is expected to make a further loss of $2 million up to the date of sale. At the date of approval of the financial statements, Lynch was in negotiation for the sale of Pin, but no contract had been signed. Lynch expects to sell Pin for $9 million and to incur costs of selling of $1 million. The value in use of Pin at August 16, 20X5, was estimated at $8 million.
Lynch had approved the relocation of the administrative headquarters of the group. Lynch does not intend to sell the property until it has renovated it. The renovations were completed on June 30, 20X5. However, on July 30, 20X5, environmental contamination was found within the headquarters that necessitated the transfer of the staff to temporary premises. The hazard was removed at a cost of $50,000 and the building declared safe on November 1, 20X5. At July 31, 20X5, the carrying value of the building was $3 million and its market value (assuming no contamination) was $4 million before estimated selling costs of $500,000.
The administrative headquarters were moved on December 1, 20X5, and the property was offered for sale at a price of $4 million. The market for such property was in decline, and a buyer had not been found by July 31, 20X6. The market price at that date was around $3.5 million, but the entity refused to reduce the sale price of the property. On September 1, 20X6, a bid of $3.3 million was accepted for the property and costs of $600,000 were incurred in its sale. The carrying value of the property at cost was $2.8 million as of July 31, 20X6. Lynch also has equipment that it recently had leased to third parties. At July 31, 20X5, there was $5 million (carrying value) of this equipment, and at July 31, 20X6, there was an additional $8 million (carrying value) of this equipment. The leases had expired at the respective dates but no decision had been made as to whether to refurbish and sell the equipment or to abandon it. The entity subsequently refurbished both sets of equipment and sold them on December 1, 20X5, for $10 million and on December 15, 20X6, for $16 million. The refurbishment costs were $2 million and $3 million respectively for the two sets of assets.
Required
Discuss the treatment of the above elements in the financial statements as of July 31, 20X5, and July 31, 20X6.