1.

2. A

3. D

4. B

5. C [1M C.A. – (800K FV – 50K costs to sell)] = 250K Impairment loss

6. Solution:
Dec. Impairment loss 250,000
31, 750,000
Machinery – held for sale
20x1 2,000,000
Accumulated depreciation
Machinery 3,000,000

7. B [750K C.A. – (700K FV – 50K costs to sell)] = 100K Impairment loss

8. Solution:
Dec. Impairment loss 100,000
31, Machinery – held for sale 100,000
20x2

9. B Gain is recognized only up to the cumulative losses recognized (i.e.,

250K + 100K = 350K). (650K C.A. + 350K gain = 1M new C.A.).

10. Solution:
Dec. Machinery – held for sale 350,000
31, 350,000
Gain on impairment
20x3
recovery

11. A
Solution:
C.A. adjusted for depreciation not recognized:
(1M C.A. on Dec. 31, 20x1 x 2/5*) = 400,000
Recoverable amount: (1M FV – 50K costs to sell) = 950,000
Lower amount = 400,000

*(5-yr. total life less 3 yrs. that have passed from 20x2 to 20x4) = 2 yrs.

12. Solution:
Dec. Machinery 400,000
31, 600,000
Loss on reclassification
20x4 1,000,000
Machinery – held for sale

13. D
Solution:
Impairment loss [1M - (600K - 50K)] (450,000)

1
Profit from Jan. to Mar. 200,000