CHAPTER 6: NONCURRENT ASSET HELD FOR SALE
Problem 6-1 (IFRS)
Dana Company accounted for noncurrent assets using the cost method. On October 1, 2020, the
entity classified an equipment as held for sale.
At that date, the carrying amount of the equipment was P3,200,000, the fair value was estimated
at P2,200,000 and the cost of disposal at P200,000.
On December 31, 2020, the asset was sold for net proceeds of P1,850,000.
What amount should be recognized as an impairment loss for 2020?
a. 1,000,000
b. 1,200,000
c. 1,350,000
d.
0
Solution:
Carrying amount
Fair value less cost of disposal (2,200,000 – 200,000)
Impairment loss
3,200,000
2,000,000
1,200,000
Problem 6-2 (IFRS)
Arlene Compony accounted for noncurrent assets using the cost model. On October 30, 2020, the
entity classified an equipment as held for sale.
At that date, the carrying amount of the equipment was P1,500,000, the fair value was estimated
at P1,100,000 and the cost of disposal at P150,000.
On December 31, 2020, the equipment was sold for net proceeds of P800,000.
1. What amount should be reported as impairment loss for 2020?
a. 550,000
b. 400,000
c. 700,000
d.
0
Solution:
Carrying amount
Fair value less cost of disposal (1,100,000 – 150,000)
Impairment loss
1,500,000
950,000
550,000
2. What amount should be recognized as loss on disposal for 2020?
a. 550,000
b. 700,000
c. 150,000
d.
0
Solution:
Sale price
Carrying amount
Loss on disposal
800,000
950,000
150,000
Problem 6-3 (IFRS)
Abba Company accounts for noncurrent assets using the revaluation model. On June 30, the entity
classified a land as held for sale.
At that date, the carrying amount was P2,900,000 and the balance of the revaluation surplus was
P200,000.
On June 30, 2020, the fair value was estimated at P3,300,000 and the cost of disposal at P200,000.
On December 31, 2020, the fair value was estimated at P3,250,000 and the disposal at P200,000.
1. What is the adjusted carrying amount of the land on June 30, 2020?
a.
b.
c.
d.
3,100,000
3,300,000
2,900,000
2,700,000
Solution:
Fair value less cost of disposal (3,300,000 – 200,000)
3,100,000
2. What is the adjusted carrying amount of the land on December 31, 2020?
a.
b.
c.
d.
3,100,000
3,300,000
3,000,000
3,250,000
Solution:
Fair value less cost of disposal (3,250,000 – 250,000)
3,000,000
3. What total amount should be reported as impairment loss for 2020?
a.
b.
c.
d.
100,000
300,000
200,000
50,000
Solution:
Carrying amount
Fair value less cost of disposal
Impairment loss - June 30, 2020
3,300,000
3,100,000
200,000
Carrying amount - June 30, 2020
Fair value less cost of disposal - December 31, 2020
Impairment loss - December 31, 2020
3,100,000
3,000,000
100,000
Total impairment loss
300,000
4. What is the revaluation surplus on December 31, 2020?
a.
b.
c.
d.
Solution:
600,000
400,000
200,000
300,000
Land held for sale, before adjustment
Fair value at classification
Revaluation surplus
Revaluation surplus - June 30, 2020
Total revaluation surplus
2,900,000
3,300,000
400,000
200,000
600,000
Problem 6-4 (IFRS)
Surreal Company accounted for noncurrent assets using the revaluation model. On October 1,
2020, the entity classified a 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, 2020, the fair value less cost of disposal of the land did not change. The land
was sold on January 31, 2021 for P6,000,000.
1. What is the adjusted carrying amount of the land on December 31, 2020?
a.
b.
c.
d.
5,000,000
5,500,000
5,400,000
3,500,000
Solution:
Adjusted carrying amount on December 31, 2020
Fair value less cost of disposal (5,500,000 – 100,000)
5,400,000
2. What is the impairment loss for 2020?
a. 100,000
b. 400,000
c. 500,000
d.
0
Solution:
Carrying amount equal to fair value
Fair value less cost of disposal (5,500,000 – 100,000)
Impairment loss for 2020
3. What is the revaluation surplus on December 31, 2020?
5,500,000
5,400,000
100,000
a.
b.
c.
d.
1,500,000
2,000,000
1,000,000
1,900,000
Solution:
Revaluation surplus - October 1, 2020
Increase in fair value (5,500,000 - 5,000,000)
Revaluation surplus reclassified to retained earnings
1,500,000
500,000
2,000,000
4. What amount should be reported as gain on disposal of land in 2021?
a. 1,000,000
b. 2,600,000
c.
500,000
d. 600,000
Solution:
Sale price
Carrying amount
Gain on disposal
6,000,000
5,400,000
600,000
Problem 6-5 (IFRS)
On January 1, 2020, Racelle Company purchased land at a cost of P6,000,000. The entity used the
revaluation model for this asset.
The fair value of the land was P7,000,000 on December 31, 2020 a P8,500,000 and on December
31, 2021.
On July 1, 2022, the entity decided to sell the land and therefore classified the asset as held for
sale.
The fair value of the land on July 1, 20222 is P7,600,000. The estimated cost of disposal is very
minimal.
On December 31, 2022, the land was sold for P8,000,000.
1. What amount in OCI should be recognized in the statement of comprehensive income for the
year ended December 31, 2021?
a. 2,500,000
b. 1,500,000
c.
400,000
d.
900,000
Solution:
Fair value - December 31, 2021
Fair value - December 31, 2020
Revaluation surplus in 2021 - OCI
8,500,000
7,000,000
1,500,000
2. What amount of gain nor loss on sale on land is recognized in 2022?
a. 2,000,000 gain
b. 1,000,000 gain
c.
400,000 gain
d.
500,000 loss
Solution:
Sale price
Carrying amount equal to fair value on July 1, 2022
Gain on disposal
8,000,000
7,600,000
400,000
3. What amount of OCI is recycled to retained earnings in 2022?
a.
b.
c.
d.
1,000,000
1,600,000
2,500,000
2,000,000
Solution:
2020
January 1
Land
6,000,0000
Cash
December 31
Land
6,000,000
1,000,000
Revaluation surplus
2021
December 31
Land
1,000,000
1,500,000
Revaluation surplus
2022
July 1
December 31
1,500,000
Revaluation surplus
Land (8,500,000 - 7,600,000)
900,000
Land held for sale
Land
7,600,000
Cash
8,000,000
Land held for sale
Gain on disposal
Revaluation surplus
900,000
7,600,000
7,600,000
400,000
1,600,000
Retained earnings
(2,500,000 - 900,000)
1,600,000
Problem 6-6 (IFRS)
On December 31, 2020, Villa Company classified as held for sale an equipment with carrying
amount of P5,000,000.
On this date, the equipment is expected to be sold for P4,600,000. Disposal cost is expected at
P200,000
On December 31, 2021, the equipment had not been sold and management after considering its
options decided to place back the equipment into operations.
On December 31, 2021, the entity estimated that the equipment is expected to be sold at P4,300,000
with the disposal cost at P50,000.
The carrying amount of the equipment was P4,000,000 on December 31, 2021 if the noncurrent
asset was not classified as held for sale.
1. What is the impairment loss for 2020?
a. 600,000
b. 400,000
c. 200,000
d.
0
Solution:
Carrying amount
Fair value less cost of disposal (4,600,000 – 200,000)
Impairment loss
5,000,000
4,400,000
600,000
2. What is the measurement of the equipment on December 31, 2021?
a.
b.
c.
d.
4,300,000
4,000,000
4,400,000
4,250,000
Solution:
Fair value less cost to sell (4,300,000 – 50,000)
Carrying amount - December 31, 2020
4,250,000
4,000,000
Under PFRS 5, an entity shall measure a noncurrent asset that ceases to be classified as held for
sale at the lower of the carrying amount on the basis that the asset had never been classified as held
for sale, and its recoverable amount on the date of the decision not to sell.
3. What is the loss on reclassification in 2021?
a.
b.
c.
d.
300,000
250,000
400,000
150,000
Solution:
Measurement of equipment - lower
Carrying amount
Loss on reclassification
4,000,000
4,400,000
400,000
Problem 6-7 (IFRS)
Clara Company purchased equipment for P5,000,000 on January 1, 2020 with a useful life of 10
years and no residual value. On December 31, 2021, the entity classified the asset as held for
sale.
The fair value of the equipment on December 31, 2020 is P4,2000,000 and the cost of disposal
is P50,000.
On December 31, 2021, the fair value of the equipment is P3,500,000 and the cost of disposal is
P100,000.
On December 31, 2021, 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.
1. What is the impairment loss to be recognized on December 31, 2020?
a.
b.
c.
d.
350,000
300,000
800,000
750,000
Solution:
Cost - January 1, 2020
Accumulated depreciation - December 31, 2020 (5,000,000/10)
Carrying amount - December 31, 2020
Fair value less cost of disposal (4,200,000 – 50,000)
Impairment loss
5,000,000
(500,000)
4,500,000
4,150,000
350,000
2. What is the measurement of the equipment that ceases to be held for sale on December 31,
2021?
a.
b.
c.
d.
4,000,000
3,500,000
3,400,000
4,150,000
Solution:
Carrying amount - December 31, 2020
Depreciation that would have been recognized in 2021 (5,000,000/10)
Carrying amount - December 31, 2021
4,500,000
(500,000)
4,000,000
Fair value - December 31, 2021
Cost of disposal
Fair value less cost of disposal
3,500,000
(100,000)
3,400,000
The measurement of the equipment as PPE on December 31, 2021 is equal to the recoverable
amount of P3,400,000 because this is lower than the carrying amount of P4,000,000.
3. What amount should be recognized as gain or loss as a result of the reclassification in 2021?
a.
b.
c.
d.
750, 000 gain
750,000 loss
150,000 gain
150,000 loss
Solution:
Measurement of equipment - lower
Carrying amount
Loss on reclassification
3,400,000
4,150,000
750,000
Problem 6-8 (IAA)
On April 1, 2020, Brandy Company had a machine with a cost of P5,000,000 and accumulated
depreciation of P3,750,000.
On April 1, 2020, the entity classified the machine as held for sale and decided to sell the
machine within one year.
On April, 1, 2020, 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, 2020, the estimated selling price of the machine had increased to P750,000
with estimated disposal cost of P100,000.
1. What is the impairment loss to be recognized on April 1, 2020?
a. 450,000
b. 800,000
c. 750,000
d.
0
Solution:
Cost - April 1, 2020
Accumulated depreciation
Carrying amount - April 1, 2020
Fair value less cost of disposal (500,000 – 50,000)
Impairment loss
5,000,000
(3,750,000)
1,250,000
450,000
800,000
2. What amount should be recognized as gain on reversal of impairment on December 31, 2020?
a.
b.
c.
d.
468, 750
368,750
300,000
200,000
Solution:
Fair value less cost of disposal (750,000 – 100,000)
Carrying amount
Gain on reversal of impairment - December 31, 2020
650,000
450,000
200,000
Problem 6-9 (IFRS)
Affable Company purchased an equipment for P5,000,000 on January 1, 2020, the equipment
had a useful life of 5 years with no residual value.
On December 31, 2020, the entity classified the equipment as held for sale. On such date, the fair
value less cost of disposal of the equipment was P3,500,000.
On December 31, 2021, 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 equipment but to continue to use it.
On December 31, 2021, the fair value less cost of disposal of the equipment was P2,700,000.
1. What is the carrying amount of the equipment on December 31, 2020, before classification as
held for sale?
a.
b.
c.
d.
5,000,000
4,000,000
3,500,000
4,500,000
2. What amount of impairment loss should be recognized in 2020?
a. 1,500,000
b. 1,000,000
c.
500,000
d.
0
Solution:
Cost - January 1, 2020
Accumulated depreciation (5,000,000/5)
Carrying amount - December 31, 2020
Fair less cost of disposal
Impairment loss for 2020
5,000,000
(1,000,000)
4,000,000
3,500,000
500,000
3. What amount should be included in profit or loss in 2021 as a result of the reclassification of
the equipment to property, plant, and equipment?
a.
b.
c.
d.
800,000 gain
800,000 loss
300,000 gain
300,000 gain
Solution:
Cost - January 1, 2020
Accumulated depreciation (5,000,000/5 x 2 years)
Carrying amount - no classification as held for sale
Fair value less cost of disposal
Measurement of equipment as PPE
5,000,000
(2,000,000)
3,000,000
2,700,000
2,700,000
The measurement of the equipment as PPE on December 31, 2021 is equal to the recoverable
amount of P2,700,000 because this is lower than the carrying amount of P3,000,000.
Measurement of equipment - lower
Carrying amount
Loss on reclassification
2,700,000
3,500,000
800,000
4. What is the adjusted carrying amount of the equipment on December 31, 2022?
a.
b.
c.
d.
2,700,000
1,800,000
2,000,000
3,000,000
Solution:
Measurement of equipment - December 31, 2021
Depreciation for 2022 (2,700,000/3 years remaining)
Carrying amount - December 31, 2022
2,700,000
(900,000)
1,800,000