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Accounting 162 – Material 006

1. T/ F. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally
through a sale transaction rather than through continuing use. Thus, the asset (or disposal group) must be available for immediate
sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its
sale must be highly probable. T
2. T/ F. Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be used
to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold. In such case, an
entity may classify as held for sale a non-current asset (or disposal group) that is to be abandoned. F
3. T/ F. An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount
and fair value less costs to sell and an entity shall measure a non-current asset (or disposal group) classified as held for distribution
to owners at the lower of its carrying amount and fair value less costs to distribute. T
4. T/ F. When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any
increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing
cost. T
5. T/ F. An entity shall recognize a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the
cumulative impairment loss that has been recognized either in accordance with PFRS 8 or in accordance with PAS 36 Impairment
of Assets. T
6. T/ F. An entity shall recognize an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair
value less costs to sell. T
7. T/ F. An entity shall not depreciate (or amortize) a non-current asset while it is classified as held for sale or while it is part of a disposal
group classified as held for sale while, interest and other expenses attributable to the liabilities of a disposal group classified as held
for sale shall continue to be recognized. T
8. T/ F. The entity shall measure a non-current asset that ceases to be classified as held for sale (or ceases to be included in a disposal
group classified as held for sale) at the lower of its carrying amount before the asset (or disposal group) was classified as held for
sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset (or disposal group)
not been classified as held for sale, and its recoverable amount at the date of the subsequent decision not to sell. T
9. T/ F. An entity shall disclose a single amount in the statement of comprehensive income comprising the total of (i) the pre-tax profit
or loss of discontinued operations and (ii) the pre-tax gain or loss recognised on the measurement to fair value less costs to sell or
on the disposal of the assets or disposal group(s) constituting the discontinued operation. F
10. T/ F. Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held for sale that does not meet
the definition of a discontinued operation shall be included in profit or loss from continuing operations. T
11. T/ F. Costs to sell are incremental costs directly attributable to the disposal of an asset (or disposal group), including finance costs
and income tax expense. F
12. Identify. The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets. CGU
13. Identify. Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the
rest of the entity. Component of an entity
14. Identify A group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly
associated with those assets that will be transferred in the transaction. Disposal group
15. Identify A component of an entity that either has been disposed of or is classified as held for sale and: (a) represents a separate
major line of business or geographical area of operations, (b) is part of a single co-ordinated plan to dispose of a separate major line
of business or geographical area of operations or (c) is a subsidiary acquired exclusively with a view to resale. Discontinued
operations

16. ABC Company accounts for noncurrent assets using the cost model. On October 1, 2017, the entity classified a noncurrent asset as
held for sale. At that date, the asset’s carrying amount was P3,200,000, the fair value was estimated at P2,200,000 and the costs of
disposal at P200,000. On December 15, 2017, the asset was sold for net proceeds of P1,850,000. Determine the impact to profit or
loss from reclassification to held for sale to disposal. Label your answer. Support your answer with entries. 1,350,000 decrease
Entries. Dr. IL 1.2M Cr. NCAH4S; Dr. Cash 1.85M Loss 150K Cr. NCAH4S

17. ABC Company accounts for noncurrent assets using the cost model. On July 31, 2017, 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 costs of
disposal at P150,000. The asset was sold on January 31, 2018 for P2,120,000. How should the mentioned asset be classified in the
financial statements at year end and by how much? Current asset 1,450,000

FOR THE NEXT FEW REQUIREMENTS: ABC Company accounted for noncurrent asset’s using the revaluation model. On October 1,
2017, the entity classified land as held for sale. At that date, the carrying amount of the land was P5,000,000 and the balance in the
revaluation surplus was P1,500,000. At same date, the fair value of the land was estimated at P5,500,000 and the cost of disposal at
P100,000. On December 31, 2017, the fair value less cost of disposal of the land did not change. The land was sold on January 31, 2018
for P6,000,000.

18. T/F. The balance of revaluation surplus at year end is P1,900,000. F 2M


19. T/F The net impact to net assets from the point of reclassification to disposal is P2,500,000 increase. F P1M increase
20. T/F At the point of sale, the equity increases by P2,600,000. F P600,000 gain
21. For the year ended December 31, 2017 statement of comprehensive income, how much other comprehensive income amount will
be included given the situation above. P500,000

FOR THE NEXT FEW REQUIREMENTS: ABC Company purchased equipment for P5,000,000 on January 1, 2017 with a useful life of
10 years and no residual value. On December 31, 2017, the entity classified the asset as held for sale. The fair value of the equipment
on December 31, 2017 is P4,200,000 and the cost of disposal is P50,000. On December 31, 2018, the fair value of the equipment is
P3,500,000 and the cost of disposal is P100,000. On December 31, 2018, 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.
22. For the year ended December 31, 2017, in preparing ABC’s statement of comprehensive income, determine the amount that will be
included on it. 350,000 IL
23. On December 31, 2018, prepare the necessary entries. Dr. Loss on reclass 750,000 Cr EH4S; Dr. Equipment Cr. Equipment
held for sale 3,400,000

FOR THE NEXT FEW REQUIREMENTS: On April 1, 2017, ABC Company had a machine with a cost of P5,000,000 and accumulated
depreciation of P3,750,000. On April 1, 2017, the entity classified the machine as held for sale and decided to sell the machine within one
year. On April 1, 2017, the machine had an estimated selling price of P500,000 and a remaining useful life of two years. It is estimated
that the disposal cost of the machine will be P50,000. On December 31, 2017, the estimated selling price of the machine had increased
to P750,000 with estimated disposal cost of P100,000.
24. Given the situation above, compute the net increase/ decrease in comprehensive income as a result of reclassification. 600,000 net
decrease
25. On December 31, 2017, what is the entry ABC should prepare? Dr. NCAH4S Cr. Gain on impairment recovery 200,000

26. ABC Company had three segments, A,B and C. Management decided to dispose of Segment C. On November 15, 2017, the carrying
amount of the assets of Segment C was P68,000,000 and .the fair value less cost of disposal was P70,000,000. Segment C’s revenue
and expenses for 2017, respectively, were P50,000,000 and P32,000,000, excluding an interest of P5,000,000 attributable to
Segment C. There was no further impairment of assets between November 15 and December 31, 2017. If the pretax income from
continuing operations amounted to P35,000,000, and the current tax rate is 30%, determine the net income of ABC. P33.6M

27. ABC Company had three segments, A,B and C. Management decided to dispose of Segment D. On November 15, 2017, the carrying
amount of the assets of Segment D was P80,000,000 and .the fair value less cost of disposal was P70,000,000. Segment D’s revenue
and expenses for 2017, respectively, were P55,000,000 and P32,000,000, excluding an interest of P5,000,000 attributable to
Segment D. There was no further impairment of assets between November 15 and December 31, 2017. If the post-tax income from
continuing operations amounted to P15,750,000, and the current tax rate is 30%, determine the net income of ABC. P21.35

28. Marie Company, a parent entity, approved on December 1, 2017 a plan to sell a subsidiary. The sale is expected to be completed
on March 31, 2018. The subsidiary had tangible assets with carrying amount of P15,000,000 and goodwill of P1,500,000 on
December 31, 2017. The subsidiary made a loss of P3,000,000 from January 1 to March 1, 2018 and is expected to make a further
loss of P2,000,000 up to the date of sale. At the date of approval of the financial statements, the entity was in negotiation for the sale
of the subsidiary but no contract had been signed. The entity expects to sell the subsidiary for P9,500,000 and to incur cost of
disposal of P500,000. The value in use of the subsidiary was estimated to be P10,000,000. On December 31, 2017, what is the
impairment loss suffered by the subsidiary classified as held for sale? 7.5M

FOR THE NEXT FEW REQUIREMENTS: ABC Company is a diversified entity with nationwide interests in commercial real estate,
development, banking, mining and food distribution. On October 1, 2017, the board of directors voted to approve the disposal of food
distribution division. The sale is expected to occur in August 2018. The food distribution division had the following revenue and expenses
in 2017: January 1 to September 30, revenue of P35,000,000 and expenses of P27,000,000; October 1 to December 31, revenue of
P15,000,000 and expenses of P10,000,000. The carrying amount of the division’s assets on December 31, 2017 was P56,000,000 and
the fair value less cost of disposal was estimated at P52,000,000. The sale contract required the entity to terminate certain employees
incurring an expected termination cost of P4,000,000 to be paid by December 15, 2018. The income tax rate is 30%.
29. Compute the income/ loss from discontinued operations. 3.5M income
30. What amount should be reported as net income of ABC for 2017 if the pretax income from continuing operations amounts to P
90,000,000? P66,500,000

FOR THE NEXT FEW REQUIREMENTS: ABC Company provided the following data for the current year:
Sales 35,000,000 Gain on sale of investments 210,000
Cost of goods sold 14,500,000 Loss due to storm surge 290,000
Interest revenue 65,000 Loss on disposition of the wholesale division 615,000
Selling and administrative expenses 5,750,000 Loss on operations of the wholesale division 200,000
Impairment loss on goodwill 520,000 Dividends declared on ordinary shares 250,000
Income tax rate 30%
31. Income from continuing operations. 9,950,500
32. Loss from discontinued operations 570,500
33. Net income 9,380,000
34. Net increase/ decrease in ABC’s shareholders’ equity? 9,130,000

35. Jazz Company operates two restaurants, one in Boracay and one in Dakak. During 2017, the entity decided to close the restaurant
in Dakak and sell the property. It is probable that the disposal will be completed early next year. The revenue and expenses for 2017
and for the preceding two years are as follows:
2017 2016 2015
Sales Boracay 60,000 48,000 40,000
Cost of goods sold-Boracay 26,000 22,000 18,000
Other expenses-Boracay 14,000 13,000 12,000
Sales-Dakak 23,000 30,000 52,000
Cost of goods sold-Dakak 14,000 19,000 20,000
Other expenses-Dakak 17,000 16,000 15,000
During the later part of 2017, the entity sold much of the kitchen equipment of the Dakak restaurant and recognized a pretax gain of
P15,000 on the disposal. The income tax rate is 30%. What amount should be reported as income or loss from discontinued operation
for 2017? 4,900 income