Chapter 8

Noncurrent Asset Held for Sale

Problem 8-1

Abba Company accounts for noncurrent assets using the revaluation model. On June
30, 2019, the entity classified a land as held for sale.

At the date, the carrying amount was P2,900,000 and the balance of the revaluation
surplus was P200,000.

On June 30,2019 the fair value was estimated at P3,300,000 and the cost of disposal at
P200,000

On December 31, 2019, the fair value was estimated at P3,250,000 and the cost of
disposal at P250,000

1. What is the adjusted carrying amount of the land on June 30,2019?

a. 3,100,000
b. 3,300,000
c. 2,900,000
d. 2,700,000

2. What is the adjusted carrying amount on the land on December 31, 2019?

a. 3,100,000
b. 3,300,000
c. 3,000,000
d. 3,250,000

3. What total amount should be reported as impairment loss for 2019?

a. 100,000
b. 300,000
c. 200,000
d. 50,000

4. What is revaluation surplus on December 31, 2019?

a. 600,000
 b. 400,000
c. 200,000
d. 300,000

Answer:

Fair value – June 30, 2019 3,300,000

Carrying amount 2,900,000
Revaluation surplus on classification date 400,000
Revaluation surplus on June 30, 2019 200,000
Total revaluation surplus – June 30, 2019 600,000

Fair value – June 30, 2019 3,300,000

Costs of disposal ( 200,000)
Adjusted carrying amount – June 30, 2019 3,100,000

Fair value – December 31, 2019 3,250,000

Costs of disposal ( 250,000)
Fair value less costs to sell 3,000,000

Thus, on December 31, 2019 the asset classified as held for sale should be measured
at the fair value less costs to sell of P3,000,000 because this amount is lower than the
carrying amount of P3,100,000. Accordingly, an impairment loss of P100,000 should be
recognized on December 31, 2019

Problem 8-2

Truth Company accounted for noncurrent assets using the revaluation model. On
October 1, 2019, the entity classified a land as held for sale.

At the 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, 2019, the fair value less cost of disposal at the land did not change.
The land was sold on January 31, 2020 for P6,000,000

1. What is the adjusted carrying amount of the land on December 31, 2019?

a. 5,000,000
b. 5,500,000
c. 5,400,000
 d. 3,500,000

2. What is the impairment loss for 2019?

a. 100,000
b. 400,000
c. 500,000
d. 0

3. What is the revaluation surplus on December 31, 2019?

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

4. What amount should be reported as gain on disposal of land in 2020?

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

Fair value – October 1, 2019 5,500,000

Costs of disposal ( 100,000)
Adjusted carrying amount –October 1, 2019 5,400,000

Carrying amount 5,000,000

Fair value less costs to sell (5,500,000 – 100,000) 5,400,000
Impairment loss 400,000

Fair value – October 1, 2019 5,500,000

Carrying amount 5,000,000
Revaluation surplus on classification date 500,000
Revaluation surplus on June 30, 2019 1,500,000
Total revaluation surplus – June 30, 2019 2,000,000

Sales price 6,000,000

Carrying amount – adjusted 5,400,000
Gain on disposal 600,000
Problem 8-3

On January 1, 2019, Racelle Company purchased land at a cost of P6,000,000. The

entity used the revaluation model for this asset.

The fair value of the land was P7,000,000 on December 31, 2019 and P8,500,000 on
December 31, 2020.

On July 1, 2021, the entity decided to sell the land and therefore classified the asset as
held for sale.

The fair value of the land on July 1, 2021 is P7,600,000. The estimated cost of disposal
is very minimal.

On December 31, 2021, the land was sold for P8,000,000.

1. What amount in OCI should be recognized in the statement of comprehensive

income for the year ended December 31, 2020?

a. 2,500,000
b. 1,500,000
c. 400,000
d. 900,000

Answer:

Fair value of land – December 31, 2020 8,500,000

Cost of land (6,000,000)
Other comprehensive income 2,500,000

2. What amount of gain or loss on sale of land is recognized in 2021?

a. 2,000,000 gain
b. 1,000,000 gain
c. 400,000 gain
d. 500,000 loss

Answer:

Land sold – December 31, 2021 8,000,000

Fair value of land – July 1, 2021 (7,600,000)
Gain on sale 400,000
3. What amount of OCI is recycled to retained earnings in 2021?

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

Answer:

Fair value of land – July 1, 2021 7,600,000

Cost of land (6,000,000)
Total 1,600,000

Problem 8-4

On December 31, 2019, Villa Company classified as held for sale on equipment with
carrying amount of P5,000,000.

On this date, the equipment is expected to be sold for P4,600,000. Disposal cost is
expected at P200,000.

On December 31,2020, the equipment had not been sold and management after
considering its options decided to place back the equipment into operations.

On December 31, 2020, the entity estimated that the equipment is expected to be sold
at P4,300,000 with the disposal cost at P50,000.

The carrying amount of the equipment was P4,000,000 on December 31, 2020 if the
noncurrent asset was not classified as held for sale.

1. What is the impairment loss for 2019?

a. 600,000
b. 400,000
c. 200,000
d. 0

Answer:

Carrying amount 5,000,000

Fair value less costs to sell (4,600,000 – 200,000) (4,400,000)
Impairment loss 600,000
2. What is the measurement of the equipment on December 31, 2020?

a. 4,300,000
b. 4,000,000
c. 4,400,000
d. 4,250,000

Answer:

Equipment expected to be sold 4,300,000

Cost of disposal 50,000
Total 4,250,000

3. What is the loss on reclassification in 2019?

a. 300,000
b. 250,000
c. 400,000
d. 150,000

Answer:

Carrying amount 5,000,000

Fair value less costs to sell (4,600,000)
Loss on reclassification 400,000

Problem 8-5

Clara Company purchased equipment for P5,000,000 on January 1, 2019 with a useful
life of 10 years and no residual value. On December 31, 2019, the entity classified the
asset as held for sale.

The fair value of the equipment on December 31, 2019 is P4,200,000 and the cost of
disposal is P50,000

On December 31, 2020, the fair value of the equipment is P3,500,000 and the cost of
disposal is P100,000.

On December 31, 2020, 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.
1. What is the impairment loss to be recognized on December 31, 2019?

a. 350,000
b. 300,000
c. 800,000
d. 750,000

Answer:

Cots 5,000,000
Accumulated depreciation (5,000,000 / 10yrs) ( 500,000)
Carrying amount 4,500,000
Fair value less cost to sell (4,200,000 – 50,000) (4,150,000)
Impairment loss 350,000

2. What is the measurement of the equipment that ceases to be held for sale on
December 31, 2020?

a. 4,000,000
b. 3,500,000
c. 3,400,000
d. 4,150,000

Answer:

Fair value of equipment – December 31, 2020 3,500,000

Cost of disposal 100,000
Total 3,400,000

3. What amount should be recognized as gain or loss as a result of the reclassification

in 2020?

a. 750,000 gain
b. 750,000 loss
c. 150,000 gain
d. 150,000 loss

Answer:

Measurement of equipment 3,400,000

Carrying amount 4,150,000
Loss on reclassification ( 750,000)
Problem 8-6

On April 1, 2019, Brandy Company had a machine with a cost of P5,000,000 and
accumulated depreciation of P3,750,000.

On April 1, 2019 the entity classified the machine as held for sale and decided to sell the
machine within one year

On April 1, 2019, the machine had an estimated selling price of P500,000 and a
remaining useful life of two years.

It is estimated that the disposal cost of the machine will be P50,000

On December 31, 2019, the estimated selling price of the machine had increased to
P750,000 with estimated disposal cost of P100,000.

1. What is the impairment loss to be recognized on April 1, 2019?

a. 450,000
b. 800,000
c. 750,000
d. 0

Answer:

Cost 5,000,000
Accumulated depreciation 3,750,000
Carrying amount 1,250,000
Selling price less cost to sell ( 500,000 – 50,000) 450,000
Impairment loss 800,000

2. What amount should be recognized as gain on reversal of impairment on December

31, 2019?

a. 468,750
b. 368,750
c. 300,000
d. 200,000

Answer:

Selling price less cost to sell – December (750,000 – 100,000) 650,000

Selling price less cost to sell – April 450,000
Gain on reversal of impairment 200,000
Problem 8-7

1. It is a group of assets to be disposed of by sale or otherwise, together as a group in

a single transaction, and liabilities directly associated with those assets that will be
transferred in the transaction.

a. Disposal group
b. Discontinued operation
c. Noncurrent asset
d. Cash generating unit

2. An entity shall classify a noncurrent asset or disposal group as held for sale when

a. The carrying amount of the asset or disposal group will be recovered

through a sale transaction.
b. The carrying amount of the asset or disposal group will be recovered through
continuing use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

3. Noncurrent asset or disposal group is classified as held for sale when the asset is
available for immediate sale in the present condition and the sale is highly probable.
For the sale to be highly probable, which of the following statements is incorrect?

a. Management must be committed to a plan to sell the asset.

b. An active program to locate a buyer and complete the plan must have been
initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to
the fair value.
d. The sale is expected to qualify for recognition as a completed sale within two
years from the date of classification of the asset as held for sale.

4. In order for a noncurrent asset to be classified as held for sale, the sale must be
highly probable. What is the meaning of highly probable?

a. The future sale is likely to occur.

b. The future sale is more likely than not to occur.
c. The sale is certain.
d. The probability is higher than more likely than not.
5. An entity shall measure a noncurrent asset or disposal group classified as held for
sale at

a. Carrying amount
b. Fair value less cost of disposal
c. Lower between carrying amount and fair value less cost of disposal
d. Higher between carrying amount and fair value less cost of disposal.

6. How should the assets and liabilities of a disposal group classified as held for sale
be shown in the statement of financial position?

a. The assets and liabilities shall be offset and presented as a single amount.
b. The assets of the disposal group shall be shown separately as current
assets and the liabilities of the disposal group shall be shown separately
as current liabilities.
c. The assets and liabilities shall be presented as a single amount and as a
deduction from equity.
d. There should be no separate disclosure of assets and liabilities that form part of
a disposal group.

7. What is the treatment of any gain on a subsequent increase in the fair value less
cost of disposal of a noncurrent asset classified as held for sale?

a. The gain shall be recognized in full.

b. The gain shall not be recognized
c. The gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized.
d. The gain shall be recognized but only in retained earnings.

8. A noncurrent asset that is to be abandoned shall not be classified as held for sale
because

a. The carrying amount will be recovered principally through continuing use.

b. The noncurrent asset is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within twelve months.
d. It is unlikely that there will be an active market for the noncurrent asset.

9. An entity classified a noncurrent asset accounted for under the cost model as held
for sale at the current year-end. Because no offers were received at an acceptable
price, the entity decided at the end of next year not to sell the asset but to continue
to use it. The asset shall be measured at the end of next year at what amount?
 a. The lower of carrying amount and recoverable amount
b. The higher of carrying amount and recoverable amount
c. The lower of carrying amount on the basis that the asset had never been
classified as held for sale and recoverable amount
d. The higher of carrying amount on the basis that the asset had never been
classified as held for sale and recoverable amount.

10. An entity recently moved to a new building. The old building is being actively
marketed for sale and the entity expects to complete the sale in four months. Which
statements is incorrect regarding the old building?

a. It will be reclassified as an asset held for sale.

b. It will be classified as a current asset.
c. It will no longer be depreciated.
d. It will be measured at historical cost.