1.
YELLOW GREEN CORP. acquired factory equipment on January 1, 2015. The total cost debited to office equipment amounted
to P180,000 which shall be depreciated over 15 years using straight-line method. On December 31, 2017, the entity assessed
that impairment indicators are present and considered the factory equipment impaired. In estimating recoverable amount,
YELLOW GREEN determined that the fair value of the asset is P130,000. The following costs were also estimated:
Transaction taxes P8,000
Legal cost and commissions 2,000
Decommissioning cost included already in provision for restoration 5,000
Termination benefits and costs associated with business reorganization 5,000
YELLOW GREEN also determined that the value in use of the asset do not materially exceeds fair value less cost of disposal. The
remaining useful life of the machine was reduced to 9 years and to be depreciated under double declining balance method.
What is the depreciation expense for the year 2018?
Carrying amount (P180,000 x 12/15)
Recoverable amount (FV-CTS) (P130,000 - P10,000)
Impairment loss
P144,000
120,000
P24,000
Depreciation 2018 (P120,000 x 22.22%) = P26,667
NOTE: Declining rate is computed as 200% x 1/9
2.
On December 31, 20x1, GREEN CORP. determined that its building with a historical cost of P25,000,000 and accumulated
depreciation of P19,000,000 is impaired. GREEN estimated an annual cash flow of P1,000,000 for the next five years. However,
the cash flow projection should be extended up to 7 years. The long-term growth rate on the 6th and 7th years are -4% and 8%, respectively. The appropriate discount rate is 10%. The fair value less costs of disposal of the building is P4,000,000.
How much is the impairment loss on December 31, 20x1?
Fair value less costs to sell
Value in use:
Year 1 to 5 (P1,000,000 x 3.7907)
Year 6 (P1,000,000 x 96% x 0.5644)
Year 7 (P960,000x 92% x 0.5132)
Total
P4,000,000
P3,790,700
P541,824
453,258
P4,785,782
P4,000,000
Carrying amount (P25,000,000 - P19,000,000)
Recoverable amount
Impairment loss
P6,000,000
4,785,782
P1,214,217
3.
PURPLE CORP. acquired machine for P1,000,000 on January 1, 2018. The machine was estimated to have a useful life of 10
years and a residual value of P200,000. Due to frequent breakdowns on the machine and disruption of production, PURPLE
believes that the machine is impaired. The following information gathered on January 1, 2022:
Fair Value 480,000
Costs of disposal 100,000
Future revenues from the continuing use of the asset 90,000
Annual income taxes 10,000
The residual value, net of necessary costs of disposal, is changed to P180,000. The useful life of the asset is changed to 8 years from
acquisition. The current pre-tax is 10%.
The depreciation expense for the year 2022 is
Depreciation expense (2022) [(P408,230 P180,000) ÷ 4 years] = P57,058
4.
On September 30, 2016, DARK BLUE INC. purchased a machinery with a list price of P600,000 and trade discounts of
P50,000. The machinery was acquired with a credit term of 2/10 n/30. The installation cost of the new machinery is P60,000
while the testing cost is P1,000. The insurance cost for the machine is P100,000, 40% of which was incurred while the
machinery is in transit. The machine is depreciated on a straight-line basis with a useful life 10 years and residual value of
P40,000.
On December 31, 2018, impairment indicators exist, causing the machine to be tested for impairment. DARK BLUE determined that
the fair value less cost to sell is P400,000. The company also determined an annual cash flow of P90,000 for 5 years. However, the cash
flow projection should be extended up to 7 years since this is the remaining useful life of the asset on December 31, 2018. The longterm growth rates on the 6th and 7th years are +4% and -6%, respectively. The pretax discount rate on December 31, 2018 is 10%.
What is the impairment loss on December 31, 2018?
Invoice price, net of cash discounts [(P600,000 - P50,000) x 98%]
P539,000
Testing cost
Installation costs
Insurance costs (P100,000 x 40%)
Cost
Residual value
Depreciable amount
1,000
60,000
40,000
640,000
(40,000)
600,000
Value in use computation:
For Year 1 to 5 (P90,000 x 3.7908)
Year 6 [(P90,000 х 104%) x 0.5645]
Year 7 [(P93,600 x 94%) x 0.5132]
Residual value (P40,000 x 0.5132)
Total value in use
Fair value less costs to sell
P341,172
52,837
45,153
20,528
P459,690
P400,000
Cost
Accumulated depreciation (P600,000 ÷ 120 months x 27)
Carrying amount 12/31/2018
Recoverable amount
Impairment loss
P640,000
(135,000)
505,000
(459,690)
P45,310
5.
PURPLE INC. reported an impairment loss of P2,000,000 in 2013. This loss was related to an item of property, plant and
equipment which was acquired on January 1, 2012 with cost of P10,000,000, useful life of 10 years and no residual value. On
December 31, 2013, the entity reported this asset at P6,000,000 which is the fair value on such date. On December 31, 2014,
the entity determined that the fair value of the impaired asset had increased to P7,500,000. The straight-line method is used in
recording depreciation.
What amount of gain on reversal of impairment should be reported in the income statement for 2014?
Fair value - January 1,2014
Depreciation for 2014 (6,000,000 / 8)
Carrying amount - 12/31/2014-with impairment
P6,000,000
750,000
P5,250,000
Cost - January 1, 2012
Accumulated depreciation - December 31, 2014 (10,000,000/10
x 3)
Carrying amount - 12/31/2014 - assuming no impairment
Carrying amount - 12/31/2014 - with impairment
Gain on reversal of impairment
10,000,000
3,000,000
7,000,000
5,250,000
P1,750,000
PAS 36, paragraph 117, provides that the fair value cannot exceed the carrying amount assuming there was no impairment.
6.
Patent
BLUE INC. presented the following balances in relation to its non-current assets as of January 1, 2018:
1,800,000
Building
Trademark
Goodwill
Accumulated amortization - patent
Accumulated depreciation - building
4,000,000
1,500,000
500,000
600,000
2,000,000
The balances of BLUE financial assets are:
Cash
Trade receivables
Trade payables
400,000
600,000
500,000
Additional information:
o
o
o
o
The above assets are considered as one cash generating unit and it was determined that on December 31, 2018, the CGU is
impaired with a value in use of P3,500,000 and fair value less cost to sell of P3,700,000
The recoverable amount of the cash generating unit cannot be determined without consideration of trade accounts payable.
The useful life of the patent and building are 15 years and 20 years, respectively.
As of December 31, 2018, the estimated future net cash flows to be generated by the trademark is P105,000, annually and the
market rate of interest on that date is 10%.
What is the amortization of the patent on December 31, 2019?
Amortization of patent (2019) (806,250 / 10) = 80,625
What is the amortization of the patent on December 31, 2019?
Patent
Building
Trademark
Goodwill
Cash
Trade Receivables
Trade Payables
Total
7.
Carrying Amount
P1,200,000
2,000,000
1,500,000
500,000
400,000
600,000
(500,000)
P5,700,000
Impairment Loss
P393,750
656,250
450,000
500,000
P2,000,000
Recoverable Amount
P806,250
1,343,750
1,050,000
400,000
600,000
(500,000)
P3,700,000
RED CORP.'s cash-generating-unit has been assessed for impairment and it has been determined that the unit has incurred an
impairment loss of P240,000. The carrying amounts of the assets were as follows:
Building
Equipment
Land
Fittings
The cash-generating unit has not recorded any amount of goodwill.
P6,000,000
2,000,000
3,500,000
2,500,000
What amount of impairment loss should be allocated to the building?
(6,000,000 / 14,000,000) x 240,000 = 102,857
8.
On September 30, 2016, DARK BLUE INC. purchased a machinery with a list price of P600,000 and trade discounts of
P50,000. The machinery was acquired with a credit term of 2/10 n/30. The installation cost of the new machinery is P60,000
while the testing cost is P1,000. The insurance cost for the machine is P100,000, 40% of which was incurred while the
machinery is in transit. The machine is depreciated on a straight-line basis with a useful life 10 years and residual value of
P40,000.
On December 31, 2018, impairment indicators exist, causing the machine to be tested for impairment. DARK BLUE determined that
the fair value less cost to sell is P400,000. The company also determined an annual cash flow of P90,000 for 5 years. However, the cash
flow projection should be extended up to 7 years since this is the remaining useful life of the asset on December 31, 2018. The longterm growth rates on the 6th and 7th years are +4% and -6%, respectively. The pretax discount rate on December 31, 2018 is 10%.
What is the depreciation of the machinery for the year 2019?
Depreciation (2019) [(P459,690 P40,000) 7 years] = P59,956
9.
10.
GREEN
COMPANY purchased a building on January 1, 2011 for P10,000,000. The building has been depreciated using the straightline method with a 25-year useful life and no residual value. On December 31, 2014, the entity is evaluating the building for
possible impairment.
The building has a remaining useful life of 15 years and is expected to generate cash inflows of P700,000 per year. The applicable
discount rate is 8%. Round off present value factor to two decimal places. The fair value of the building on December 31, 2014 is
P5,300,000.
What amount should be recognized as impairment loss for 2014?
Value in use (P700,000 x 8.5595)
Fair value less cost to sell
P5,992,000
5,300,000
Recoverable amount
Carrying amount (P10,000,000 x 21/25)
Impairment loss
P5,992,000
8,400,000
P2,408,000
11. BLACK CORP. acquired a trademark on April 1, 2018 amounting to P180,000. It was determined that due to an indefinite
renewal option every 10 years of the trademark; its useful life is indefinite. Also, it was determined that the trademark is
impaired due to internal impairment indicators on December 31, 2018. The fair value less cost to sell of the trademark is
P120,000. The annual future cash flows from the trademark is P13,000. The pretax discount rate is 10%.
How much is the impairment loss on December 31, 2018?
Fair value less costs to sell
Value in use (P13,000 ÷ 10%)
Recoverable amount (whichever is higher)
Carrying amount
Impairment loss
P120,000
P130,000
P130,000
180,000
P50,000
12. ORANGE CORP. determined that, due to obsolescence, equipment with an original cost of P9,000,000 and accumulated
depreciation on January 1, 2014, of P4,200,000 had suffered permanent impairment, and as a result should have a carrying
amount of only P3,000,000 as of the beginning of the year. In addition, the remaining useful life of the equipment was reduced
from 8 years to 3.
In the December 31, 2014 statement of financial position, what amount should be reported as accumulated depreciation?
9,000,000 – 3,000,000 = 6,000,000 + 1,000,000 = 7,000,000
3,000,000/3 = 1,000,000
13. On January 2, 2014, INDIGO CORP. acquired all the net assets of MAROON CORP. for P3,000,000. The identifiable net
assets of MAROON at the time of acquisition is P2,000,000. The net identifiable net assets of MAROON had a remaining life
of 12 years. MAROON is a cash-generating-unit. On December 31, 2014, the recoverable amount of MAROON was
P1,360,000.
In year 2015, the business situation improves in the country and government policies change. As a result, management re-estimates the
recoverable amount of Ancient Ltd. At the end of year 2015, the recoverable amount of MAROOON is P1,910,000. Beginning of year
2015, INDIGO had decided to change its depreciation rate to 10% per annum on carrying value of the net identifiable assets.
What amount of impairment recovery should INDIGO report in its 2015 profit or loss?