BALIUAG UNIVERSITY

CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

DISCONTINUED OPERATION AND NONCURRENT ASSET HELD FOR SALE

1. K COMPANY is a diversified entity with nationwide interest in commercial real estate

development, banking, mining and food distribution. The food distribution division was
deemed to be inconsistent with the long-term direction of the entity. On October 1,
2017, the board of directors voted to approve the disposal of this division. The sale is
expected to occur in August 2018. The food distribution had the following revenue and
expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses
of P25,000,000; October 1 to December 31, revenue of P10,000,000 and expenses of
P12,000,000. The carrying amount of the division’s asset on December 31, 2017 was
P50,000,000 and the recoverable amount was estimated to be P55,000,000. The sale
contract required the entity to terminate certain employees incurring an expected
termination cost of P1,000,000 to be paid by December 15, 2018. The income tax rate
is 30%. What amount should be reported as income from discontinued operations for
2017?

a. 5,600,000
b. 9,100,000
c. 4,900,000
d. 8,400,000

2. On July 1, 2017, L COMPANY committed to a plan to dispose of a major subsidiary.

The disposal met the requirements for classification as discontinued operation. The
carrying amount of the subsidiary was P8,000,000 and management estimated the fair
value less cost of disposal at P6,500,000. The subsidiary had an operating loss of
P2,000,000 for the entire year. What amount should be presented as pretax loss from
discontinued operation for the current year?

a. 3,500,000
b. 1,500,000
c. 2,000,000
d. 0

3. M COMPANY accounted for noncurrent assets using the cost model. On July 1, 2017,
the entity classified an equipment as held for sale. At that date, carrying amount was
P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at
P100,000. On December 31, 2017, the equipment was sold for net proceeds of
P2,500,000. What amount should be included as an impairment loss for 2017?

a. 1,600,000
b. 2,500,000
c. 1,500,000
d. 900,000

4. N COMPANY accounted for noncurrent assets using the revaluation model. On October
1, 2017, 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, 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. What amount should be reported as gain on disposal of land in 2018?

a. 1,000,000
b. 2,600,000
c. 500,000
d. 600,000

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 BALIUAG UNIVERSITY
CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

5. O COMPANY purchased an equipment for P5,000,000 on January 1, 2016. The

equipment had a useful life of 5 years with no residual value. On December 31, 2016,
the entity classified the asset as held for sale. On such date, the fair value less cost of
disposal of the equipment was P3,500,000.

On December 31, 2017, 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. On December 31, 2017, the fair value less cost of disposal of the
equipment was P2,700,000.

1. What amount of impairment loss should be recognized in 2016?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

2. What amount should be included in profit or loss in 2017 as a result of the

reclassification of the equipment to property, plant and equipment?

a. 800,000 gain
b. 800,000 loss
c. 300,000 gain
d. 300,000 loss

3. What is the depreciation for 2018?

a. 1,000,000
b. 875,000
c. 900,000
d. 675,000