Problems 5 & 6

Group 3
JAVIER KIM LEVERIZA LIPANA
Problem 5
Requirement 1: Determine the ff. as of Dec. 31, 2014 & Dec.
31, 2017:
A.) Impairment loss/Reversal of impairment loss (if any)
B.) Carrying values of the asset after impairment/reversal (if
any)
Problem 5
Carrying Value [(7,500,000/15)x5] P 2,500,000
Value in Use (Present Value of Future Cash
Flows)*
2015 (650,000 * 0.8772) P
570,180
2016 (625,000 * 0.7695)
480,938
2017 (705,000 * 0.6750)
475,875
2018 (550,000 * 0.5921)
325,665
2019 (400,000 * 0.5194)
207,760





Req. 1B(2,060,408)
Impairment Loss P 439,582
Requirement 1A (December 31, 2014)
*Fair Value less costs to sell is not determinable
Problem 5
Carrying Value (2,060,408 x 2/5)
Capital Expenditure
P 824,163
400,000
Carrying Value W/ impairment
CV W/O impairment
P 1,224,163
Req. 1B(1,400,000)
Gain on Reversal of Impairment P 175,837
Requirement 1A (December 31, 2017)
Problem 5
PV of future cash flows:
2018 (715,000 * 0.8772)
2019 (1,105,000 * 0.7695)
P 627,198
850,298
VALUE IN USE (Recoverable Amount) P 1,477,496
Recoverable amount cannot exceed CV w/o IL so we use
P1.4M.
CV w/o impairment [(7,500,000/15)(2) + 400,000] P 1,400,000
Problem 5
2014 Depreciation Expense 500000
Accumulated Depreciation 500000

Impairment Loss 439582
Accumulated Depreciation 439582

2017 Depreciation Expense 412082
Accumulated Depreciation 412082

Airplane 400000
Cash 400000

Accumulated Depreciation/IL 175837
Gain on Reversal of Impairment Loss 175837

Requirement 2: Prepare necessary journal entries in 2014 and
2017. Prepare a disclosure in the financial statements in 2014 and
2017.
Problem 5
DISCLOSURES
2014
The company recognized an impairment loss of P439,582
during the period because the recoverable amount was less
than the carrying value of the net assets. The recoverable
amount was determined by getting the value in use using the
pre-tax rate of 14%.

2017
The company recognized a gain on reversal of impairment
loss because the carrying amount was lower than the
recoverable amount of the asset. It was determined by
getting the value in use using the pre-tax rate of 14%.
Problem 6:
Impairment of Intangible
Assets
Intangible Assets
Assets with
(1) Future economic benefits
(2) No physical substance
(3) High degree of uncertainty
concerning the future benefit

Limited Life:
Subject to
amortization and
impairment
Intangible Assets
Unlimited Life:
Subject to
Impairment, tested
at least annually
Intangible Assets
Problem 6
Requirement: Prepare all journal entries necessary on
December 31, 2014, in connection with these three
intangible assets
Problem 6
Requirement: Prepare all journal entries necessary on
December 31, 2014, in connection with these three
intangible assets
Impairment Loss 250,000
Trademark 250,000
Trademark Book Value Php 3,000,000.00
Annual Cash Flow Php 275,000.00
Divided by: 0.10 (2,750,000.00)
Impairment Loss Php 250,000
Problem 6
Requirement: Prepare all journal entries necessary on
December 31, 2014, in connection with these three
intangible assets
Goodwill Book Value Php 1,500,000.00
Expected Cash Flow
from Manufacturing
Unit

Php 300,000.00
Multiplied by: PVOA 8.7715 (2,631,450.00)
Impairment Loss 0
Problem 6
Requirement: Prepare all journal entries necessary on
December 31, 2014, in connection with these three
intangible assets
Impairment Loss 294,240
Customer List 294,240
Customer List Php 1,600,000.00
Annual Cash Flows
2015
(800,000X0.9091)

Php 727,280.00
2016
(700,000X0.8264)
578,480.00 (1,305,760)
Impairment Loss Php 294,250