Chapter 4

Non-current assets Held for Sale and Discontinued Operations

PROBLEM 1: TRUE OR FALSE

1. FALSE 6. TRUE
2. TRUE 7. FALSE
3. TRUE 8. TRUE
4. TRUE 9. TRUE
5. FALSE 10. TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. B

2. D

3. B

4. A

5. D

6. D

7. C

8. A

9. D

10. B

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

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

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

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

15. 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.).

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

17. 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.

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

19. D
Solution:
Impairment loss [1M - (600K - 50K)] (450,000)
Profit from Jan. to Mar. 200,000
Loss from Apr. to Dec. (120,000)
Total (370,000)
Multiply by: (100% - 30%) 70%
Results of discontinued operations (259,000)