VOL 3 CHAPTER 6 (NONCURRENT ASSET HELD FOR SALE)

Noncurrent Asset Held for Sale

- does not meet the definition of a current asset Formulas

- may be an individual asset (land and building),
Accumulated Depreciation
or a disposal group
- classified as held for sale if the carrying amount cost of PPE−salvage value
¿ x no . of years
will be recovered principally through a sale useful life
transaction
- there is intention to sell the asset Carrying Amount

Conditions for classification as held for sale: ¿ Cost of PPE− Accumulated Depreciation

1. asset or disposal group is available for Impairment Loss

immediate sale in the present condition ¿ Carrying Amount−Fair value less cost of D
2. sale must be highly probable

Highly Probable
Illustration Computation
1. management must be committed to a plan to sell
2. active program to locate a buyer and complete the 5,000,000−500,000
Accumulated Dep .= x3
initiated plan 10
3. sale is expected to be a completed sale within one = P1,350,000
year from date of classification
4. asset must be actively marketed for sale at a Carrying Amount=5,000,000−1,350,000
reasonable price
= P3,650,000
5. actions required to complete the plan indicate that
it is unlikely the plan will be significantly changed or Impairment Loss=3,650,000−1,900,000
withdrawn
= P1,750,000
Measurement
Journal entries:
- lower of carrying amount or fair value less cost
Equipment held for sale 3,650,000
of disposal Accumulated Depreciation 1,350,000
- shall not be depreciated Equipment 5,000,000
Writedown to fair value less cost of disposal
Impairment Loss 1,750,000
- treated as impairment loss: FVLCD lower than Equipment held for sale 1,750,000
CA
Cash 1,500,000
- if asset is a disposal group, impairment loss is
Loss on sale of equipment 400,000
apportioned across the assets based on carrying Equipment held for sale 1,900,000
amount after writing off any goodwill first

Subsequent increase in fair value Abandoned current assets

- recognize a gain but not in excess of any
impairment loss previously recognized
ILLUSTRATION
On January 1, 2020, an entity acquired an equipment at
a cost of P5,000,000 to be used in the ordinary course
of business. The equipment has an estimated useful life
of 10 yeas and a residual value of P500,000.
- asset shall not be recognized as noncurrent if it
is to be abandoned
Temporarily abandoned
- is expected to be brought back to use then it
shall not be regarded as abandoned

On January 1, 2023, the equipment was classified as

held for sale. On such date, the fair value less cost of
disposal was estimated at P1,900,000. On June 30,
2023, the equipment was sold P1,500,000
 CHAPTER 23 (PROPERTY, PLANT, AND EQUIPMENT)

Property, plant, and equipment

- are tangible assets that are held for use in Acquisition of property
production or supply of goods or services, and so
1. Cash basis
on
2. On account subject to cash discount
- expected to be used during more than one
3. Installment basis
period 4. Issuance of share capital
Examples 5. Issuance of bonds payable
6. Exchange
1. land 6. motor vehicle 7. Donation
2. land improvements 7. furniture and fixtures 8. Government grant
3. building 8. office equipment 9. Construction
4. machinery 9. tools
5. land 10. bearer plants Acquisition on a cash basis

Recognition of PPE - Cost of PPE is the cash price equivalent at the

recognition date
- PPE shall be recognized as an asset when: - Cash paid plus freight, installation cost, and
1. It is probable that future economic benefits other direct costs
associated with the asset will flow to the
entity Example
2. The cost of the asset can be measured Fair Value Fraction Allocated Cost
reliably Land 1,000,000 1/5 1,100,000
Building 4,000,000 4/5 4,400,000
Measurement at recognition
5,000,000 5,500,000
- Shall be measured at cost

Elements of Cost Acquisition on account

a. Purchase price, including import duties and - Cost of asset: invoice price – discount
nonrefundable purchase taxes
Example
b. Costs directly attributable to bringing the asset
to the location An equipment is purchased for 100.000, 2/10, n/30. The
c. Initial estimate of the cost of dismantling and purchase may be recorded using either the gross
removing the item method or net method
Directly attributable costs Gross Method
Examples: 1. To record the acquisition
Equipment 100,000
a. Costs of employee benefits arising directly from
Accounts Payable 100,000
the acquisition of PPE
b. Cost of site preparation
2. To record the payment within the discount period
c. Initial delivery and handling cost
Accounts payable 100,000
d. Installation and assembly cost
Cash 98,000
e. Professional fees
Equipment (2% x 100,000) 2,000
f. Costs of testing whether the asset is
functioning properly
3. To record the payment beyond the discount
period
Measurement after recognition
Accounts payable 100,000
- Entity shall choose either the cost model or the Purchase discount lost 2,000
revaluation model as the accounting policy for Cash 100,000
PPE Equipment 2,000
- COST MODEL: PPE are carried at cost less any
Xcvxcv
accumulated depreciation and impairment loss
- REVALUATION MODEL: PPE are carried at Asdasd
revalued carrying amount
(fair value at the date of revaluation less any
subsequent accumulated depreciation and
Impairment loss)
 Example
zxc
A machinery is acquired at an installment price of
xcv
700,000. The terms are 100,000 down and the balance
xc
payable in three equal annual installments
Net method
A note is issued for the balance of 600,000. There is no
1. To record the acquisition available cash price for the machinery. However, the
Equipment 98,000 implied interest rate for this type of note is 10%.
Accounts Payable 98,000
Using the implied interest rate of 10%, the present
2. To record the payment within the discount period value of an ordinary annuity of 1 is 2.487 for three
Accounts payable 98,000 periods.
Cash 98,000 -n
3. To record the payment beyond the discount 1 - (1+ .1)
Implied interest rate =
period .1
Accounts payable 98,000
Down payment 100,000
Purchase discount lost 2,000
Present value of note payable 497,400
Cash 100,000
(200,000 x 2.487)
Total cost of machinery 597,40
Acquisition on installment basis
Note payable 600,000
- Asset shall be recorded at cash price Present value of note payable 497,400
- Excess of installment price over the cash price is Implied interest 102,600
treated as an interest to be amortized

Example Journal entries

A machinery is purchased at an installment price of 1. To record the acquisition
350,000. The terms are 50,000 down and the balance Machinery 597,400
payable in three equal annual installments. Discount on note payable 102,600
Accounts Payable 600,000
The cash price of the machinery is 290,000. A
Cash 100,000
promissory note is issued for the installment balance of
300,000. 2. To record the first installment payment
Journal entries Note payable 200,000
Cash 200,000
1. To record the acquisition of the machinery
Machinery 290,000 3. To amortize the discount on note payable
Discount on Note payable 60,000 Interest expense 49,740
Note payable 300,000 Discount on note payable 49,740
Cash 50,000

2. To record the first installment payment Amortization of discount on note payable

Note payable 100,000 Year Paymen Interest Principal Present value
Cash 100,000 t
Jan. 1 497,400
3. To amortize the discount on note payable 1st year 200,000 49,740 150,260 345,140
Interest expense 30,000 2nd year 200,000 34,714 165,286 181,854
Discount on note payable 30,000 3rd year 200,000 18,146 18,854 -

Note Fraction Interest

payable Expense Issuance of Share Capital
First year 300,000 3/6 30,000
Second year 200,000 2/6 20,000 a. FV of the property received
Third year 100,000 1/6 10,000 b. FV of the share capital
600,000 60,000 c. Par Value or stated value of the share capital

Issuance of Bonds Payable

No available cash price a. FV of bonds payable
- Asset is recorded at an amount equal to present b. FV of the asset received
value of all payment using an implied interest c. Face amount of bonds payable
rate Exchange
 - Measured at fair value Equipment 800,000 1,000,000
- Exchange is recognized at carrying amount Accumulated depreciation 380,000 400,000
under the ff circumstances: Carrying amount 420,000 600,000
a. Lack commercial substance Fair value 450,000 500,000
b. FV is not measured reliably Cash paid by Yee to Zee 50,000 50,000

Exchange with Commercial Substance Books of Yee (Payor)

Commercial substance Equipment – new 470,000

- new notion; event affecting the cash flows of Accumulated depreciation 380,000
Cash 50,000
the entity by reason of exchange
Equipment – old 800,000
Cost of Property
Payor FV given plus cash payment
Carrying amount 420,000
Recipient FV given minus cash received
Add: Cash payment 50,000
Example Cost of new asset 470,000

Aye and Bee exchanged equipment. Books of Zee (Recipient)

Aye Bee Equipment – new 550,000
Equipment 1,600,000 2,000,000 Accumulated depreciation 400,000
Accumulated depreciation 900,000 1,350,000 Cash 50,000
Carrying amount 700,000 650,000 Equipment – old 1,000,000
Fair value 600,000 800,000
Cash paid by Aye to Bee 200,000 200,000
Carrying amount 600,000
Books of Aye (Payor) Add: Cash payment 50,000
Cost of new asset 550,000
Equipment – new 800,000
Accumulated depreciation 900,000
Loss on exchange 100,000
Equipment – old 1,600,000
Cash 200,000

Fair Value of asset given 600,000

Add: Cash payment 200,000
Cost of new asset 800,000

Fair value of asset given 600,000

Less: carrying amount 700,000
Loss on exchange (100,000)

Books of Bee (Recipient)

Equipment – new 600,000

Accumulated depreciation 200,000
Cash 1,350,000
Equipment – old 2,000,000
Gain on exchange 150,000

Fair Value of asset given 800,000

Add: Cash payment 200,000
Cost of new asset 600,000

Fair value of asset given 800,000

Less: carrying amount 650,000
Gain on exchange 150,000

Exchange with no Commercial Substance

Yee Zee
Trade in

Fair value approach

Trade in approach

Donation

Construction

Derecognition

Fully depreciated property

Property classified as held for sale

Idle or abandoned property