Practical Accounting I

Revaluation and Impairment

April 29, 2019

Problem I

Steve Company acquired a building on January 1, 2016 at a cost of P20,000,000. The building had a useful life of 6 years and
residual value of P2,000,000. The building was revalued on January 1, 2019 and the revaluation revealed replacement cost of
P30,000,000, residual value of P4,000,000 and revised useful life of 8 years from the date of acquisition. The tax rate is 30%.

1. What is the revaluation surplus on December 31, 2019?

2. What is the annual depreciation for 2019?

Problem II

Ophilia Company showed land with carrying amount of P10,000,000 and building with cost of P60,000,000 and accumulated
depreciation of P18,000,000. The land and building were revalued on same date and revealed the fair value of land at P15,000,000
and the building at P70,000,000. The original useful life of the building is 20 years and depreciation is computed on the str aight
line. The income tax rate is 30%.

1. What is the revaluation surplus on December 31, 2019?

2. What is the annual depreciation for 2019?

Problem III

Mylene Company determined that the electronics division is a cash generating unit. The entity calculated the value in use of the
division at P8,000,000. The carrying amounts of the assets are building P5,000,000, equipment P3,000,000, and inventory
P2,000,000. The entity also determined that the fair value less cost of disposal of the building is P4,500,000.

1. What is the impairment loss on building?

2. What is the impairment loss on equipment?
3. What is the impairment loss on inventory?

Problem IV

On January 1, 2019, Francis Company purchased equipment with cost of P10,000,000, useful life of 10 years and no residual value.
The entity used straight line depreciation. On December 31, 2019 and December 31, 2020, the entity determined that impairment
indicators are present. There is no change in useful life or residual value.

December 31, 2019 December 31, 2020

Fair value less cost of disposal P8,100,000 P8,300,000
Value in use 8,550,000 8,200,000

1. What is the impairment loss for 2019?

2. What is the gain on reversal of impairment for 2020?
3. What is the depreciation for 2021?