MABALACAT CITY COLLEGE ACCOUNTING REVIEW 1

INSTITUTE OF BUSINESS AND EDUCATION Events After the Reporting Period

NCA Held for Disposal
Discontinued Operations

Problem 1: Arlene Company accounted for noncurrent assets using the cost model. On October 30, 2017,
the entity classified a noncurrent asset as held for sale. At that date, the carrying amount was P 1,500,000.
Fair value was estimated at P 1,100,000, and cost of disposal at P 150,000.
On November 20, 2017, the asset was sold for net proceeds of P 800,000.

1. What amount should be reported as impairment loss for 2017? P 550,000

2. What amount should be included as loss on disposal in the statement of comprehensive income for
the year ended Dec 31, 2017? P 150,000

Problem 2: On January 1, 2017, Racelle Company purchased land at a cost of P 6,000,000. The entity used
the revaluation model for this asset.
The fair value of the land was P 7,000,000 on Dec 31, 2017 and P 8,500,000 on Dec 31, 2018. On July 1, 2019,
the entity decided to sell the land and therefore classified the asset as held for sale.

The fair value of the land on this date is P 7,600,000. Estimated cost of disposal is very minimal.
On Dec 31, 2019, the land was sold for P 8,000,000.

1. What amount in OCI should be recognized in the statement of comprehensive income for the year
ended Dec 31, 2018? P 1,500,000
2. What amount of gain or loss on sale of land is recognized in 2019? P 400,000 Gain
3. What amount of OCI is recycled to retained earnings in 2019? P1,600,000

Problem 3: On April 1, 2017, brandy company had a machine with a cost of P 5,000,000 and accumulated
depreciation of P 3,750,000. On the same date, the entity classified the machine as held for sale and decided
to sell the machine within one year.
Still on the same date, the machine had an estimated selling price of P 500,000 and a remaining useful life
of 2 years.It is estimated that selling cost associated with the disposal of the machine will be P 50,000.

On Dec 31, 2017, the selling price of the machine had increased to P 750,000 with estimated selling cost of P
100,000.
1. What amount of impairment loss should be recognized in 2017? P 800,000
2. What amount should be recognized as gain on reversal of impairment on Dec 31, 2017? P 200,000

Problem 4: Clara Company purchased equipment for P 5,000,000 on Jan 1, 2017 with a useful life of 10 years
and no residual value.
On Dec 31, 2018, the entity classified the equipment as held for sale. The fair value of the equipment on Dec
31, 2018 was P 3,300,000 and the cost of disposal is P 100,000.

On Dec 31, 2019, the fair value of the equipment was P 3,800,000 and the cost of disposal is P 200,000. The
value in use is determined to be P 3,300,000. At the same date, the entity assessed 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 Dec 31,2018? P 800,000
2. What is the measurement of the equipment that ceases as held for sale on Dec 31, 2019? P 3,500,000
3. What amount should be recognized in profit or loss as a result of the reclassification in 2019? P 300,000 gain
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MABALACAT CITY COLLEGE ACCOUNTING REVIEW 1
INSTITUTE OF BUSINESS AND EDUCATION Events After the Reporting Period
NCA Held for Disposal
Discontinued Operations
Problem 5: Xavier Company has three segments, A, B, and C. segment C, the closing division, is deemed
inconsistent with the long-term directions of the entity and so management dispose of Segment C.
On Nov 15, 2017, the directors of the company voted to approve the disposal and an announcement was
made. On that date, carrying amount of Segment C’s net assets was P 90,000,000 and the fair value less cost
of disposal was P 70,000,000.
Segment C’s revenue and expense for 2017, respectively were P 50,000,000 and P 32,000,000, including an
interest of P 5,000,000 attributable to Segment C.

1. Before income tax, what amount of income or loss from discontinued operation should be reported
for 2017? P20,000,000

Problem 6: On October 1, 2017, the board of directors of Zebra Company voted to approve the disposal of
its food distribution division. The sale is expected to occur on August 2018.
During the year, the food distribution had revenue of P 35,000,000 and expenses of P 27,000,000 prior to
the plan for disposal.
The carrying amount of the division’s net assets on Dec 31,2017 was P56,000,000 and the fair value less cost
of disposal was P 58,000,000.
The sale contract required Zebra to terminate certain employees incurring an expected termination cost of P
4,000,000 to be paid by Dec 15, 2018. Income tax rate is 30%
1. What amount should be reported as income from discontinued operations? P 2,000,000

Problem 7: Flame company has two divisions: North and South. Both qualify as business segments.
In 2017, the entity decided to dispose of the assets and liabilities of division South and it is probable that the
disposal will be completed early next year.

The revenue and expenses of Flame company are as follows:

2017 2016
Sales – North P 5,000,000 4,600,000
Total nontax expenses-North 4,400,000 4,100,000
Sales-South 3,500,000 5,100,000
Total nontax expenses – South 3,900,000 4,500,000

During the latter part of 2017, the entity disposed of a portion of division South and recognized a pretax loss
of P 2,000,000 on this disposal. Tax rate is 30%.

1. What amount should be reported as loss from discontinued operation in 2017?

Problem 8: In 2017, ABSCBN qualified for the qualifications of a discontinued segment. Active plan has been
made for its disposal not lated than 1 year after 2017’s year-end.

Analysis of the records for the year disclosed the following relative to ABSCBN:
Operating loss for the current year P 8,000,000
Loss on disposal of some Electronics Division assets during 2017 500,000
Expected operating loss in 2018 preceding final disposal 1,000,000
Expected gain in 2018 on disposal of the segment 2,000,000
Penalty payments to contractors due to breach of contract
resulting from closing of business (not yet included in operating loss) 3,000,000
Government revenue losses resulting from discontinuance 120,000,000
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1. What amount should be reported as pretax loss from discontinued operation in 2017? P 11,500,000
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COMPILED BY: WENSTON DEL ROSARIO ACCTGREV1_007.2