PROBLEMS

PROBLEM 1: TRUE OR FALSE

l. When there is a change in the plan to sell a held sa~e asset,
that asset i~ reclassified back to its previous class1ficahon and
measured at its carrying amount before it was classified as
held for sale, adjusted for any depreciation, amortization or
revaluation that would have been recognized had the asset not
been classified as held for sale.
2. Profit from continuing operations does not include
extraordinary items, discontinued operations, or cumulative
effects of changes in accounting principles.
3. . A component of an entity comprises operations and cash
flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity.
4. A component of an entity can be cash generating unit or group
of cash generating units.

Use the following information for the next two questions:

An entity, a brewer of beer, has three major product lines - Brand
A, Brand B and Brand C. Each product line comprises· operations
and cash flows that can be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the entity.
On March 1, 20~1, the entity commits to a plan to sell Brand A to
another company; All the conditions for classification as held for
sale under PFRS 5 are met.

5. The ·results of operations of Brand A from March 1, 20xl until

the date of its disposal shall be excluded from continuing
operations and shall be presented as a single amount net of
tax. · ·
6. When the 20xl financial statements are issued, the
comparative financial statements of the preceding period shall
be restated to exclude the results of operations of Brand A
from continuing operations.
 a. Fair value .
b. Fair value less costs to sell
c. Fair value through other comprehensive income
d. Lower of carrying amount and fair value less costs to sell

7. An entity makes a formal plan to sell its building that has no

value in use. The building has a carrying amount of Pl,000,000
and a fair value less costs to sell of PS00,000. The building is
currently being marketed at its current condition at a price of
Pl,000,000. The entity's management believes that it is
significantly more likely than not that the sale will be
consummated within 12 months after the end of th~ reporting
period. How should the entity present the building in its
current statement of financial position?
a. As property, plant and equipment measured at Pl,000,000.
b. As noncurrent asset held for sale measured at Pl,000,000.
c. As property, plant and equipment measured at PS00,000.
d. As noricurrent asset held for sale measured at PS00,000.

B. Which of the following is not one of the criteria for classifying

an asset as held for sale in accordance with PFRS 5?
a. The sale is probable to occur within one year from the -end
of the reporting period. ·
b. The asset or disposal group is available for immediate.sale
in its present condition.
c. An appropriate level of management is .committed to a
plan to sell the asset.
d. An active pi:ogram to locate a buyer has b~en initiated.-

9· ABC Co. classified a land as "held for sale" in its December 31,
20x0 financial statements in accordance with PFRS · 5. On
December 31, 20xl, the land remains unsold. Which of the
following instances would not provide a valid reason for ABC
Co. to continue to classify the land as held for sale in its 20xl
financial statements?
 a. The failure to sell the land is beyond the control of ABc
Co.
b. As of December 31, 20xl, ABC Co. has decreased the sale
price of the land. . .
c. ABC Co. has increased its effort on selling the land by
engaging more brokers and making more advertisements.
d. ABC Co. has not changed the sale price of the land. .

10. On December 31, 20xl, ABC Co. has no intention of selling a

land classified as investment property measured at cost.
However, on January 2, 20x2, because of an unanticipated
.opportunity, ABC Co. sold the land at a very high profit. How
should ABC Co. classify the land in its December 31, 20xl
statement of financial position?
a. As investment property measured at the sale price on
January 2, 20x2.
b. As investment property measured at cost.
•c. As held for sale asset measured at the sale price on
January 2, 20x2.
· d. The land shall not be included in the December 31, 20xl
statement of financial position because it 1s already
considered sold.

Use the following" information for the next four questions:

On De~ember 31, 20xl, an entity classifies machinery with
historkal cost of ~3,000,000, accumulated depreciation of
P2,000,000 ~nd_remaining useful life of 5 years as held for sale. The
entity depreciates its machinery using the straight line method
with no resid,ual value. · The fair value of the machinery on
Dece~ ber 31, 20xl is PS00,000 while costs to sell are estimated at
PS0,000. The sale price of the machinery is PS00,000.

11. Which of the f?llowing shall be recognized by the entity ill its
20xl financial statements?
Held for sale asset Impairment loss
a. P800,000 PlS0,000
b. P750,000 P200,000
c. P750,000 P250,000
d. PO P250,000
12. Requirement: Provide the journal entry on December 31, 20xl.
13. Qn December 31, 20x2, the machinery remains unsold. The
fair value of the machinery on December 31, 20x2 is P700,000
while costs to sell are estimated at PS0,000. The entity
decreased the sale price to P650,000. Which of the foJlowing
shall be recognized by the entity in its 20x2 financial
statements?
Held for sale asset Impairment loss
a. P700,000 Pl00,000
b. P650,000 Pl00,000
C.P650,000 P.150,000
d. PO Pl00,000
14. Requirement: Provide the jo~mal entry on December 31, 20x2.
15. On December 31, 20x3, the· machinery remains unsold. The
fair value of the machinery on December 31, 20x3 is Pl,100,000
while costs to sell are estimated at PS0,000. The failure to
locate a buyer and complete the sale is beyond the entity's
control. The entity further decreased the sale price to P600,000.
Which of the following shall be recognized by the entity in its
20x3 financial statements?
Held for sale asset Gain on impairment recovery
P450,000
a. Pl,lO<tOOO
b. Pl,000,000 P350,000
C. P750,000 P250,000
d. PO P350,000
16. Requirement: Provide the journal entry on December 31, 20x3.

17. On December 31, 20x4, the machinery remains unsold. The

· fair value of the machinery on December 31, 20x4 is Pl,000,000
while costs to sell are estimated at PS0,000. The entity did not
further decrease the sale price. Which of the following shall be
recognized by the entity in its 20x4 financial statements?
a. · Property, plant and equipment for P400,000
b. Property, plant and equipment for Pl,000,000.
c. Noncurrent asset held for sale for P950,000.
d. Noncurrent asset held for sale for Pl,000,000.

18. Requirement: Provide the journal entry on December 31, 20x4.

19. On April 1, 20xl, an entity decides to dispose a major product

line. All the conditions for held for sale classification under
PFRS 5 a,re met. On this date, the carrying amount of the net
assets of the major product line is Pt000,000. The entity
expects gross proceeds of P600,000 from the disposal. Direct
costs associated to the decision to dispose the major product
line amount to PS0,000.

From January 1 to March 31, the profit ~rom the product line is
P200,000, while from April 1 to December 31, the loss from the
product line is P120,000. The entity is subject to an income tax
rate of 30%. Assume there are no temporary differences.

· In relation to the product line, how much profit (loss) will the
entity recognize in its 20xl financial statements?·
Continuing operations Discontinued operations
a. ·200,000 399,000
b. 140,000 399,000
C. (250,000)
(84,000)
d. 0 (259,000)
pROBLEM 3: hXERCISES .
1. On December 31, 20xl, an entity classifies a buildhlg with an
original-cost of P20,000,000, carrying amount of PB,000,000 and
remaining useful life of 8 years as held for sale. The entity uses
the straight line method of depreciation with no residual value
for this asset. The fair value of the building on December 31,
20xl is P7,000,000 while costs to sell are estimated at P200,000.
The building is being marketed at a sale price of P7,000,000.

On December 31, 20x2, the building remains unsold. The fair

value of the building on December 31, 20x2 is P6,800,000 while
costs to sell are estimated at P200,000. The entity decreased the
sale price to P6,000,000.

On December 31, 20x3, the building still remains unsold. The

fair value of the machinery on December 31, 20x3 is PB,800,000
while costs to sell are estimated at P200,000. The failure to
locate a buyer and complete the sale is beyond the entity's
control. The entity further decreased . the sale price to
PS,800,000.

On December 31, 20x4, the building remains unsold. The fair

value of the machinery on December 31, 20xl is P9,000,000
while costs to sell are estimated at P200,000. The entity did not
further decrease the sale price.

Requirements: Provide the journal entries.

2· The statement of financial position 0£ an entity on 'D ecember

31, 20xl shows the following information:

600,000
Cash and cash equivalents
1,200,000
~ade and other receivables
Ventories 3,600,000
Investment property (Cost model) 1,400,000
 Investment in associate 800,00Q
Property, plant and equipment 5,000,00Q
=---
12,600,00 0
f
Total assets

Trade and other payables 4,900,000

Current tax payable 1,800,000
\ •

Deferred tax liability 700,00Q

Ordinary share capital 2,000,000
_Retained earnings 2,700,000
Other components of equity 500,000
Total liabilities & equity 12,600,000

·On December 31, 20x1, the entity C?mmits to a plan to sell the
in.vestment property. All the conditions of PFRS 5 are met. The fair
value of the investment property on this date is Pl,600,000 while
the estimate of costs to sell is PS0,000.

Requirement: Prepare the classified statement of financial position

of the entity as at December 31, 20xl.

3. The statements of financial position and profit or loss of an

entity on December 31, 20xl shows the following information:

Cash and cash equivalents 1,500,000

·Trade and other receivables 3,000,000
Inventories 9,000,00o
Investment property (Cost model) 3,500,000 )
Investment in associate 2,000,000
Property, plant and equipment 12,500~
Total assets 31,500,000~

Trade and other payables 12,2so,o00

Current tax payable 4,500,00o
Deferred tax liability 1,750,oOO
Ordinary share capital s,000,000
 Retained earnings 6,750,000
other components of equity 1,250,000
Total liabilities & equity 31,500,000

Revenue 5,600,000
Cost of sales (2,000,000)
Gross profit 3,600,000
Distribution costs (780,000)
Administrative expenses . (900,000)
Impairment loss (reversal) on assets held for sale
Finance costs (300,000)
Share of profit of associates 240,000
Profit for the period from continuing operations 1,860,000
Discontinued Operations:
Profit for the period from discontinued operations _ _ _ _ __
Profit for the period 1,302,000

On December 31, 20xl, the entity commits to a plan to sell an

equipment with carrying amount of P2,800,000. The following will
be sold together with the equipment: accounts receivable with
carrying amount of P200,000, inventories with carrying amount of
P560,000 and accounts payable with carrying amount of P360,000.
The entity determines that the equipment has a fair value less
· costs to sell of Pl,600,000. The carrying amounts of the other assets
and the liability approximate their fair value less costs to sell. All
the conditions of PFRS 5 are met. ·

Requirement: Prepare the December 31, 20xl classified statement of

financial position and the statement of profit or loss of the entity.
Ignore the effects of income taxes. ·

4· An entity has three major product lines. Each product line ·

comprises operations and cash flows that can be clearly
distinguished, operationally and for financial . reporting
purposes, from the rest of the entity. During the year, the
entity commits to a plan to sell Product line 2. All the
 I
conditions of PFRS 5 are met. The results of operations of the
product lines quring the year are shown below:
· Product line 1 Product line 2 Product line 3
Revenue 2,000,000 1,700,000 2,400i)0O
-
Cost of goods sold (800,000) (1,100,000) {960,000)
Gross profit 1,200,000 600,000 1,440,00Q
f
Distribution costs (300,000) (450,000) (360,000)
Administrative
(180,000)
exeenses (150,000) (200,000)
Profit before tax 750,000 (50,000) 900,000
Additional information: _
• Product line 2 has total assets of P6,000,000 and total liabilities
of P4,S00,OOO. The assets have a fair value less costs to sell of
PS,000,000.
• The entity expects to realize a gain of P200,000 on the sale,
which is expected to occur in the following period.
• The entity is subject to a 30% income tax rate. There are· no
temporary differences. All gains and losses have tax
consequences.
Requirement: Prepare the statement of profit or loss of the entity.
5. The. statements of fin~cial position and profit or loss of an
entity on December 31, 20xl shows the following information:
Cash and cash equivalents 1,800,000
Trade and other receivables 3,600,000
Inventories 10,800,000
Investment property (Cost model) 4,200,000
Investment in associate 2,400,000
froperty, plant and equipment 15,000,000
Total assets ----
37,800,000
--
Trade and other payables 14, 700,000
 current tax payable 5,400,000
Deferred tax liability 2,100,000
Ordinary share capital 6,000,000
Retained earnings - Dec. 31, 20xl 8,100,000
Other components of equity 1,500,000
' Total liabilities & equity 37,800,000

Revenue 6,720,000
Cost of sales (2,400,000)
Gross profit 4,320,000
Distribution costs (936,000)
Administrative expenses (1,080,000)
Finance costs (360,000)
Share of profit of associates 288,000
Profit for the year 2,232,000

On December 31, 20xl, the entity commits 'to a plan to sell a

component of an entity that represents a major geographical area
of operations. All the conditions of PFRS 5 are met. Information on
the component is as follows: -

Financial position:
Accounts receivable 240,000
Inventory 672,000
Equipment 3,360,000
Accounts payable 432,000

Financial performance:
Revenue 2,000,000
Cast of sales 1,200,000
Distribution costs 280,000
Adnt" ·
Inistrative expenses 432,000
A.ddit · ·
, zonal information:
The entity determines that the equipment has a fair value less
costs to sell of Pl,600,000. The carrying amounts of the 9ther
 assets and the liability approximate their fair value less costs
to sell.

Requirement: Prepare the December 31, 20xl classified statement of

financial position and the statement of profit or loss of the entity.
Ignore the effects of income taxes. ·

PROBLEM 4: MULTIPLE CHOICE - THEORY

1. According to PFRS 5, assets held for sale are measured at
a. fair value c. carrying amount
b. fair value less costs to sell d. lower of b and c

2. Assets held for sale are

a. required under PAS 36 to be tested for impairment
annually
b. . amortized over a period not exceeding 5 years.
c. depreciated
d. not depreciated

3. According to PFRS 5, held for sale classification is permitted

when
a. the noncurrent asset or disposal group is available for
immediate sale in its present condition
· b. the sale is highly probable
c. aandb
d. the sale actually occurred after the reporting period but
before the financial statements were authorized for issue.

4. The qualification of an asset to ·be classified as held for sale

after the reporting period but before the financial statements
are authorized for issue
a. is a non-adjusting event after reporting period.
b. is an adjusting event after reporting period.
c. is an extraordinary item.
d. aorb
s. According to PFRS 5, gain on impairment reversal on an asset
held for sale is
a. recognized for the fair value change during the period
b. recognized in other comprehensive income
c. recognized only to the extent of cumulative impairment
losses previously recognized.
d. notrecognized

6. According to PFRS 5, the assets and liabilities of a disposal

group are presented
a. as one line item in either current assets or current
liabilities.
b. as one line item in either noncurrent assets or noncurrent
liabilities.
c. separately on the face of the statement of financial
position.
d. a orb

7. The results of discontinued operations are presented

separately in the statement of profit or loss and other
comprehensive income
a. as a single amount gross of tax.
b. as a single amount net of tax.
c. as part of the regular line items.
d. a orb

8
· According to PFRS 5, a disposal group may qualify as
discontinued operation if
a. it is a component of an entity
b. meets the held for sale classification criteria under PFRS 5.
c. a and b
d. none of these
9
· lhe results of a discontinued operati~ns are presented in the
statement of profit or loss
 a. Before the profit or loss from continuing operations but
after the profit for the year.
b. After the profit or loss from continuing operations but
before the profit for the year.
c: Separately from the ·profit or loss from continuing
operations and it does not affect the profit for the year.
d. .As an adjustment to the beginning balance of the retained
earnings.

10. The statement of profit or loss includes which of the

following?
a. Revenue, cost of goods sold, distribution costs, general
and administrative expenses and extraordinary items.
b. Discontinued operations.
c. Gains and losses arising from treasury share transactions.
d. Other comprehensive income.

PROBLEM 5: MULTIPLE CHOICE- COMPUTATIONAL

1. The following is Gold Corp.'s June 30, 20xl, trial balance:
Cash overdraft 10,000
Accounts receivable, net 35,000
Inventory 58,000
Prepaid expenses 12,000
Non-current assets classified as held for sale 100,000
Pr?perty, plant, and equipment, net 95,000

) Accounts payable and accrued expenses

Ordinary share capital
Share premium
32,000
25,000
150,000
Retained earnings 83,0QQ_
Totals 300,000 300,000
'
Additional Information:
• Checks amounting to P30,000<were· written to vendors and
recorded o.n June 29, 20xl, r~sulting in a cash overdraft of
Pl0,000. The checks were mailed on July 9, 20xl.
, The "Non-current assets classified as held for sale" refers to
land. The land was sold for cash on July 15, 20xl.
, Gold issued its financial statements on July 31, 20xl.
In its June 30, 20xl, statement of financial position, what amount
should Gold report as current assets? ·
a. 225,000 b. 205,000 c. 195,000 d. 125,000
(AICPA)
Use the following information for the next two quest.ions:
On December 31,-20xl, ABC Co. committed to a plan to sell its
building at its current condition. ABC Co. expects that the sale will
occur within twelve months after the end of the current reporting
period. The building has a carrying amount of Pl2,000,000 and an
estimated useful life of 5 years at the start of the year. ABC Co.
depreciates the building using the straight line method of
depreciation with no residual value. The building has a fair value
of PS,000,000 and estimated costs to sell of Pl00,000 at the end of
the year. All the conditions for classifying the building as held for
sale are met as of year-end. ·
2. How much is the carrying amount of the building in ABC
Co.'s December 31, 20xl statement of financial position?
a. 12,000,000 b. 9,600,000 c. 8,000,000 d. 7,900,000
3. How much is the impairment loss recognized on December 31, _
2~1?
a. 4,100,000 b. 4,000,000 C. 1,700,000 d. 1,600,000
4· On November 1, 20x3, management of Herron Corporation
committed to a plan to dispose of Timms Company, a major
subsidiary. The disposal meets the · requirements for
classification as discontinued operations. The carrying value
of Timms Company was P8,000,000 and management
estimated the fair value less costs to sell to be P6,500,000. For
20x3, Timms Company had a loss• of P2,000,000. How much
should Herron Corporation present as loss from discontinl:led
 operations before the effect of taxes in its income statement for
20x3?
b. 1,500,000 c. 2,000,000 d. 3,500,000
a.O
(AICPA)

s. On December 1, 20x3, Greer Co. committed to a ·plan to

dispose of its Hart business componen~' assets. 1:1e di~posal
meets the requirements to be classified as discontinued
operations. On that date, Greer estimated that the loss from
the disposition of the assets would be P700,000 and Hart's
20x3 operating losses were P200,000. Disregarding income
taxes, what net gain (loss) should be reported for discontinued
operations in Greer's 2003 income statement?
a. 0 b. (200,000) c. (700,000 d. (900,000)
(AICPA)

6. On November 30, 20x5, Pearman Company committed to a _

plan to sell a component unit that met the criteria _for a
discontinued operation and was properly classified as held for
sale. The component unit was tested for impairment -and a
P400,000 loss was calculated. The component unit's loss from
operations was Pl,000,000.' The final sale was expected to
occur on February 15, 20X6. What amount(s) should report as
loss from discontinued operation before consideration of the
tax effects?
a. Pl,400,000 loss.
b. P400,000 loss.
C. Pl,000,000.

d. P400,000 impairment loss and Pl,000,000 loss from

discontinued operations.
(AICPA)

7. On April 27, 20X5, ABC committed to a plan to sell a

component unit. As a result, the component unit's operations
an~ ca~h flows will be eliminated from ABC's operations and
ABC will not have any si~ificant post-sale involvement in the
component's operations. The component was sold on
December 25 for a gain of Pl00,000. During the period fro111
 January 1, 20X5, to April 27, 20X5, the component unit had
income of PlS0,000. However, from the period April 27 to
December 25 the component suffered a loss of PS0,000.
Ignoring taxes, what should ABC report for discontinued
operations for 20X5?
a. 50,000 b. 50,000 loss c. 200,000 d. 100,000
(AICPA)

s. On December 31, 20X4, Greer Co. entered into ~n agreement to

sell its Hart segment's assets. On that date, . Greer estimated
the gain from the disposition of the assets in 20X5 would be
P700,000 and Hart's 20X5 operating losses would be P200,000.
As a result of the sale, the component's operations and cash
flows will be eliminated from the entity's operations and the
entity will not have any significant continuing post-sale
involvement in the component's operations. The component is
classified as held for sale. Hart's actual operating losses were
P300,000 in both 20X4 and 20X5, and the actual gain on
disposition of Hart's assets in 20X5 was P650,000.
Disregarding income taxes, what net gain (loss) should be
reported for discontinued operations in Greer's comparative
20X5 and 20X4 income statements?
20X5 20X4
a. 50,000 (300,000)
b. 0 50,000
C. 350,Q()() (300,000)
d. (150,000) 200,000
(AICPA)

9. On April 30, 20X6, Carty Corp. approved a plan to dispo~e of

a segme1!t of its business. The estimated . disposal loss is
P480,000, including severance pay of PSS,000 and employee
relocation costs of P25,000, both of which are directly
associated with the decision to dispose of the segment. Also
included is the segment's estimated operating loss·of Pl00,000
for the period from May 1, 20X6, to the disposal date. A
Pl20,000 operating loss from January 1, 20X6, to April 30,
 20X6, is not included in the estimated disposal loss of
P480,000. The estimate was equal to the actual loss incurred
during the year. Before income taxes, what amount should be
reported in Carty's income statement for the year ended
December 31, 20X6, as the loss from discontinued operations?
a. 600,000 b. 480,000 c. 455,000 d. 425,000
(AICPA)
10. Rock Co.'s financial statements had the following balances at
December 31:
Profit for the period from discontinued operations 50,000
Foreign currency translation gain 100,000
Profit for the year 400,000
Unrealized gain on FVOO equity securities 20,000
What amount should Rock report as comprehensive income for
the year ended December 31?
a. 400,000 b. 420,000 c. 520,000 d. 570,000
(AICPA)