In this workout, Applepie group is disposing of one of its subsidiaries in an all cash deal. We're asked to calculate the gain on sale and adjust the group balance sheet to account for the divestiture. We're also told that tax is paid in arrears. Important to note here that this is a share sale and there's nothing about tax base has been mentioned. Just a bog standard share sale. So let's start by calculating the gain on sale. We know that subsidiary sale price was 250, and we also know that the subsidiaries equity is 110. If it's worth 110 in the books, but we've sold it for 250, we must have made a gain of 140. Fantastic. So that's gain on sale. We now need to start working on de consolidating, getting rid of the subsidiary from the group balance sheet. So to do this, we'll start with the group balance sheets. It's important to realize that these group figures already include the subsidiary figures.

And what I'm then gonna do is I'm gonna add on these adjustment columns. So because of the divestment, we'll have some adjustments. When I'm in line with any of these blue figures, I'm just gonna copy my formula down. And when I'm in line with any of these subtitles, I'm going to sum upwards. Let's check that the group, excluding the subsidiary balances and it balance sheet does balance. We've got assets of 600 liabilities and active of 600. So we now move on to our two adjustment columns, and the first one is the one that we see all the time in divestments. We have to get rid of that subsidiary. So what I've now got for my group, excluding subsidiary, bigger for cash, is I've got the group of 100 minus the subsidiary of 30, gimme 70. I need to do that for cash, the other current assets, net pp&e debts, operating liabilities, but not equity. We do not deconsolidate equity. So that's our first column. What other adjustments do we need to make? Well, we had cash proceeds of 250, so that's the first one that needs to go in.

We were also told that tax has to be paid and that's gonna be paid in arrears. We need to pay tax on the gain, and that's gonna be an operating liability if it's paid in arrears. So the gain was 140 and we pay tax of 20% on that. So we've got an extra liability, but I'm still not quite balancing. I need to work out why that is. And it's because we've got a gain on sale. Gain on sale goes through the income statement. So that's gonna be my 140, but it's still not balancing and it's not balancing by the 28. And that's because my gain on sale has to go through post tax, through the income statement. So my gain on sale post tax is the 140 yes, minus the 28 of tax that needs to be paid. And that gets us our final adjusted balance sheet, which now excludes the subsid.