ACCTG21 MIDTERM L1 EXERCISE

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. On December 31, 2015, Zee Company has an equipment with the following cost and accumulated
depreciation:
Equipment 9,000,000
Accumulated depreciation 3,000,000

Due to obsolescene and physical damage, the equipment is found to be impaired. On december 31, 2015, the
entity has determined the following information related to the equipment:
Fair value less cost of disposal 4,500,000
Value in use or discounted net cash inflows 4,000,000

What amount should be reported as impairment los for 2015?

____ 2. Listless company acquired equipment on January 1, 2014 for P5,000,000. The equipment had a 10-year useful
life and no residual value. On December 31, 2015, the following information was obtained:
Equipment 9,000,000
Accumulated depreciation 3,000,000

Due to obsolescene and physical damage, the equipment is found to be impaired. On december 31, 2015, the
entity has determined the following information related to the equipment:
Fair value less cost of disposal 4,500,000
Value in use or discounted net cash inflows 4,000,000

What amount should be reported as impairment los for 2015?

____ 3. Cynosure Company has an equipment with carrying amount of P1,600,000 on December 31, 2015 after
recording depreciation for 2015. The following information is available on December 31, 2015 relative to the
equipment:
Fair value of similar equipment 1,400,000
Discounted future cash flows 1,300,000
Undiscounted future cash flows 1,350,000

At what amount should the equipment be reported on December 31, 2015?

____ 4. Jacqueline Company had an equipment with carrying amount of P4,500,000 at year-end:
Expected discounted net cash flows 4,000,000
Fair value, assuming similar asset 4,150,000
Fair valu, assuming the asset is sold stand-alone 4,280,000

What is the impairment loos that should be reported the current year?
____ 5. Ball Company determined as result of a plant rearrangement that there had been a significant change in the
manner in which a machinery was going to be used in manufacturing process.
Expected future cash inflows use for the machinery 3,500,000
Expected future cash outflos from use of the machinery 750,000
Expected future cash proceeds froms sale of the machinery
at the disposal date 500,000
 For purpose of determining an impairment, what is the amount of expected future cash flows that would be
used for the machinery?
____ 6. During December 2015, Bubba Company determined that there had been a significant decrease in market
value of an equipment used in the manufacturing process.

On December 31, 2015, the entity complied the following information

Original cost of equipment 5,000,000
Accumulated depreciation 3,000,000
Expected undeiscounted net future cash inflows
related to the continued use and eventual
disposal of the equipment 1,750,000
Fair value of equipment 1,250,000

What amount of impairment loss hsould be reported in the income statement for the year ended December 31,
2015?
____ 7. Zambia Company purchased four convenience store buildings on January 1, 2009 for a total of P25,000,000.
The buildings have been depreciated using the straight-line method with a 20-year useful life and 10%
residual value.

On January 1, 2015, the entity has converted the buildings into a hotel and restaurant. Because of the change
in the use of the buildings, the entity is evaluating the buildings for possible impairment.

The entity estimated that the buildings have a remaining useful lige of 10 years, that their residual value
will be zero, that ent cash inflows from the buildings will total P1,500,000 per year, and that the current fair
value of the four buildings totals P10,000,000.

The appropriate discount rate is 12%. The present value of an ordinary annuity of 1 at 12% for 10 periods is
5.65.

What amount of impairment loss should be recognized for 2015?

____ 8. On January 1, 2015, Zimbabwe Company has a machinery with cost of P5,000,000 and accumulated
depreciation of P1,500,000.

The machinery was acquired on January 1, 2015 and had been depreciated using the traight line method with
useful life of 10 years and no residual value. On January 1, 2015, the entity has properly tested the machinery
to be impaired.

The machinery has a remaining life of 5 years and is expected to generate undicounted net cash inflows of
P800,000 per year. The fair value of the machinery on January 1, 2015 is P3,000,000.

The appropriate discount rate is 8%. The present value of an ordinary annuity of 1 at 8% or 5 periods is 3.99

What amount should be recognized as an impairment los for 2015?

____ 9. On January 1, 2015, Zimbabwe Company has a machinery with cost of P5,000,000 and accumulated
depreciation of P1,500,000.

The machinery was acquired on January 1, 2015 and had been depreciated using the traight line method with
useful life of 10 years and no residual value. On January 1, 2015, the entity has properly tested the machinery
to be impaired.
 The machinery has a remaining life of 5 years and is expected to generate undicounted net cash inflows of
P800,000 per year. The fair value of the machinery on January 1, 2015 is P3,000,000.

The appropriate discount rate is 8%. The present value of an ordinary annuity of 1 at 8% or 5 periods is 3.99

What is the depreciation of the machinery for 2015?

____ 10. Blake Company purchased a building on January 1, 2012 for P10,000,000. The buidling has been depreciated
using the straight line method with a 25-years useful life and no residual value.

On December 31, 2015, the entity is evaluating the building for possible impairment. The fair value of the
building on December 31, 2015 is P5,300,000/

The building had a remaining useful life of 15 years and is expected to generate cash inflows of P700,000 per
year.

The applicable discount rate is 8%. Round off present value factor to two decimal places.

What amount should be recognized as impairment loss for 2015?