Turning Loss into Profit: A Case Study of Apex Co.
How did Apex Co. manage to turn a loss into profit?
During the year, Apex Co. sold an unprofitable component of the company. The component had a net loss from operations during the period of $150,000 and its assets sold at a loss of $100,000. Apex reported income from continuing operations before taxes of $128,387. All items are taxed at 30%.
Answer:
In the Apex income statement,
Income from continuing operations before taxes: $128,387
Taxation: $38,516.1
Profit for the year from continuing operations: $89,870.9
Loss from discontinued operations: ($175,000)
Loss for the year: ($10,129.1)
Apex Co. managed to turn a loss into profit by selling the unprofitable component of the company during the year. Despite facing a net loss from operations and selling the assets at a loss, the income from continuing operations before taxes allowed the company to offset the losses, resulting in a profit for the year.
The tax expenses were calculated at 30% of the income from continuing operations before taxes, amounting to $38,516.1. This tax expense reduced the overall profit, but it was still enough to outweigh the losses incurred from the discontinued operations.
By appropriately accounting for the losses from the discontinued operations separately in the income statement, Apex Co. was able to showcase a clear distinction between the profit generated from continuing operations and the losses from the discontinued component. This transparency in financial reporting helps stakeholders understand the company's performance effectively.