On December 31, 2013, Edge’s board of directors voted to discontinue the operations of this computer games division was sell all the assets of the division. The division was sold on February15, 2014. On December 31, 2013, Edge estimated that losses from operations, net of tax, for the period January 1, 2014, through February 15, 2014, would be $400,000 and that the gain from the sale of the division’s assets, net of tax, would be $250,000. These estimates were materially correct.
9) Adjustment:- $150,000. Disclosure:- Yes.
Subsequent events that provide additional information about conditions that already existed at balance sheet date have to be accrued and disclosed. Edge’s board of directors voted to discontinue the operation of the computer games division on December 31, 2013, as of balance sheet date and the sale was done on February 15, 2014 before financial statements were presented, the net loss of $150,000 (i.e. $400,000 - $250,000) has to be accrued and disclosed. The rules of subsequent events will take over the rule of discontinued operations which states that expected loss from operations should not be accrued. This will not be treated as an expected loss but actual loss as the sale date was prior to the release of the financial statements and this would be a subsequent event.