QUIZ – DISCONTINUED OPERATION

1. Dana Company accounts for noncurrent assets using the cost model. On October 1, 2020, the
entity classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P3,200,000, its fair value was estimated at P2,200,000 and the cost of disposal at P200,000. On
December 15, 2020, the asset was sold for net proceeds of P1,850,000. What amount should be
included as an impairment loss in the statement of comprehensive income for the year ended
December 31, 2020?

2. Arlene Company accounts for noncurrent assets using the cost model. On October 30, 2020, the
entity classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P1,500,000, its fair value was estimated at P1,100,000 and the cost of disposal at P150,000. On
November 20, 2020, the asset was sold for net proceeds of P800,000. What amount should be
included as loss on disposal in the statement of comprehensive income for the year ended
December 31, 2020?

3. Coral Company accounts for noncurrent assets using the cost model. On July 31, 2020, the entity
classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P1,450,000, the fair value was estimated at P2,150,000 and the cost of disposal at P150,000. The
asset was sold on January 31, 2021 for P2,120,000. At what amount should the asset be measured
in the statement of financial position on December 31, 2020?

4. Lynx Company is planning to dispose of a collection of assets. The entity designated these assets
as a disposal group. The carrying amount of these assets immediately before classification as held
for sale was P2,000,000. Upon being classified as held for sale, the assets were revalued to
P1,800,000. The entity feels that it would cost P100,000 to sell the disposal group. What is the
carrying amount of the disposal group after classification as held for sale?

5. On April 1, 2020, Brandy Company has a machine with a cost of P1,000,000 and accumulated
depreciation of P750,000. On April 1, 2020, the entity classified the machine as “held for sale”
and decided to sell the machine within 1 year. On April 1, 2020, the machine had an estimated
selling price of P100,000 and a remaining useful life of 2 years. It is estimated that selling cost
associated with the disposal of the machine will be P10,000. On December 31, 2020, the
estimated selling price of the machine had increased to P150,000 with estimated selling cost of
P20,000. What amount should be recognized as gain on reversal of impairment on December 31,
2020?

6. Clara Company purchased equipment for P5,000,000 on January 1, 2018 with a useful life of 10
years and no residual value. On January 1, 2020, the entity classified the asset as held for sale.
The fair value of the equipment on January 1, 2020 is P3,300,000 and the cost of disposal is
P100,000. On December 31, 2020, the fair value of the equipment is P3,800,000 and the cost of
disposal is P200,000. On December 31, 2020, the entity believed that the criteria for classification
as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. What is the measurement of the equipment that ceases as held for sale on
December 31, 2020?

7. Using the same information in no. 6, what amount should be recognized in profit or loss as a
result of the reclassification in 2020?

8. Booker Company committed to sell its comic book division (a component of the business) on
September 1, 2020. The carrying amount of the division was P4,000,000 and the fair value was
 P3,500,000. The disposal date is expected to be June 1, 2021. The division reported an operating
loss of P200,000 for the year ended December 31, 2020. Ignoring income tax, what amount
should be reported as loss from discontinued operation in 2020?

9. Enron Company decided on August 1, 2020 to dispose of a component of its business. The
component was sold on November 30, 2020. The income for 2020 included income of
P5,000,000 from operating the discontinued segment from January 1 to the sale date. The entity
incurred a loss on the November 30 sale of P4,500,000. Ignoring income tax, what amount should
be reported in the 2020 income statement as income or loss under “discontinued operation”?

10. On September 30, 2020, when the carrying amount of the net assets of a business segment was
P70,000,000, Young company signed a legally binding contract to sell the business segment. The
sale is expected to be completed by January 31, 2021 at a selling price of P60,000,000. In
addition, prior to January 31, 2021, the sale contract obliges Young company to terminate the
employment of certain employees of the business segment incurring an expected termination cost
of P2,000,000 to be paid on June 30, 2021. The segment revenue and expenses for 2020 were
P40,000,000 and P45,000,000 respectively. Before income tax, what amount should be reported
as loss from discontinued operation for 2020?