DIY LtdOwns 20 Subsidiary Companies

question 27

Multiple Choice

DIY Ltd.owns 20 subsidiary companies.Most of the subsidiaries are hardware stores operating in rural areas.One of the subsidiaries has been having financial difficulties and has finally decided to cease operations.Which of the following statements about DIY's consolidated financial statements is true?

• A)DIY should report this as a discontinued operation.
• B)DIY should report any losses from this as part of its normal operating activities.
• C)Whether DIY treats this as a discontinued operation or not depends on if it used the cost method or the equity method to record the subsidiary.
• D)DIY is not required to disclose anything about this closure.

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Definitions:

Average Variable Cost

The variable cost of production divided by the quantity of output produced, indicating the variable cost on a per-unit basis.

Economic Profit

The financial discrepancy that arises from subtracting a business's comprehensive expenditures, including direct and indirect costs, from its total income.

Short Run

A time period in economics during which at least one input is fixed and cannot be changed by the firm.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies with the level of production.