It is a fall in the market value of an asset so that the recoverable amount is now less than the

carrying amount in the statement of Financial position

Impairment
It is the amount at which an asset is recognized in the statement of financial position after
deducting accumulated depreciation and accumulated impairment loss
Carrying amount
Significant change in the technological or economic environment is an example of source of
information that leads to impairment
External source
Evidence of obsolesence or physical damage of an asset is an example of source of information
that leads to impairment
Internal source
Whichever is higher between the fair value less cost of disposal or value in use
Recoverable amount
It is the price that would received to sell the asset in an orderly transaction between market
participants at the measurement date
Fair value
It is an incremental cost directly attributable to the disposal of an asset or cash generating unit,
excluding finance cost and income tax expense
Cost of disposal / cost to sell
It is measured as the present value of future net cash flows to be derived from an asset
Value in use
The cash flows and discount rate applied to compute the present value should be after tax (True
or False)
False
The reversal of the impairment loss shall be recognized immediately as _____ in the income
statement
Income
It is the smallest identifiable group of assets that generate cash inflows from continuing use that
are largely independent of the cash inflows from other assets or group of assets
Cash Generating Unit
If there is an impairment loss of CGU, the loss will allocated first on what account
Goodwill
These are group or divisional assets
Corporate Assets
Liabilities are part in the computation of carrying amount of the CGU (True or False)
False
Most often the recoverable amount of CGU is equivalent to
Value in Use

Land held for capital appreciation

Investment property

Land held for undecided future use

Investment property

Building lease as operating lease and lease out under operating lease

Investment property

Building lease under operation lease out as finance lease

NONE

Land lease as finance lease and lease out as operating lease

Investment property

Land lease as finance lease and lease out as finance lease

NONE

Property held for use in the production or supply of goods or services

NONE

Property held for administrative purposes

NONE

Property held for sale in the ordinary course of business

Inventory

Property held in process of construction or development for sale

Inventory

Property held for future use as owner occupied

 PPE

Property held for future development and subsequent use as owner is occupied

PPE

Property occupied by employees

PPE

Owner occupied awaiting for disposal

PPE

Machinery purchased with the intention to leased it out to other companies

PPE

Building that is being constructed or being developed for use as an investment property

Investment property

Constructed a hotel building but will be managed by others with the condition that the company will
provide the laundry services

NONE

Constructed a hotel building with the intention to manage the hotel while laundry services will be
outsource form other company

Investment Property

Constructed a condoted building with the plan to sell every room and manage it like hotel administered
by buyer of the condotel

Inventory

A machinery owned by the parent company to be rented out by the subsidiary under an operating lease
(under consolidated FS)

PPE

A machinery owned by the subsidiary company to be rented out by the parent under an operating lease
(under subsidiary company FS)

NONE

A land owned by the parent company to be rented out by the subsidiary company under operating lease
(Under parents company FS)

Investment property

A land owned by the subsidiary company to be rented out by the parent company under operating lease
(under consolidated FS)

PPE
A building lease by the company under operating lease with an intention for rent. The company uses cost
method under lease

Investment property

A machinery lease by the company under operating lease with an intention for rent. The company uses
fair value method under lease

NONE

Theories

Which of the following is not part of the cost of investment property?

Start up cost

Which of the following is not an investment property?

Property that is leased to another entity under a finance lease

The entity’s main intention for investment property is to

To earn rental or for capital appreciation

Subsequently, investment property will be measured at

Cost model or fair value model

If the investment property is acquired through exchange and such transaction lacks commercial
substance, the investment property will be measured at:
Carrying amount of the asset given up book pg. 639

If subsequently, the entity uses the cost model for investment property the guidance to be followed in
measuring the investment property will be
Either of the choices depending on the property’s classification

Under the standard, there is a rebuttable presumption that an entity can reliably measure the fair value
of an investment property
On continuous basis

Investment property includes

Property being constructed or developed on behalf of third parties (not included daw based ani
IAS 40 Investment Property

Property that is being redeveloped for continuing use as an investment property.

Property that is being constructed or developed for future use as an investment property (naa
sad ni sa IAS 40)

Property leased to another entity under finance lease (not included sad daw ni based sa link
above)
  I and IV
 II and III
 I, II and IV
 II only

Investment property excludes

1. Property being constructed or developed on behalf of third parties
2. Property that is being redeveloped for continuing use as an investment property.
3. Property that is being constructed or developed for future use as an investment property
4. Property leased to another entity under finance lease

 I and IV
 II and III
 I, II and IV
 II only

Investment property and owner occupied are properties held by

1. The owner
2. By the lessee as right of use asset
3. By the lessor in finance lease (wrong ni)
4. Both A or B
5. None of the above

Problems

Consina Company acquired a machinery on January 1, 2019 for 900,000. At the date the machinery had
a useful life of 25 years. On December 31, 2019 the Fair Value of the building was 960,000 and on
December 31,2020, the fair value of the building is 980,000. The Building was classified as an investment
property.
If the company is using the fair value model, how much amount will be reflected in the
statement of financial position on December 31, 2020?
980,000
Given

Consina Company acquired a machinery on January 1, 2019 for 900,000. At the date the machinery had
a useful life of 25 years. On December 31, 2019 the Fair Value of the building was 960,000 and on
December 31,2020, the fair value of the building is 980,000. The Building was classified as an investment
property.
If the company is using the cost model, how much amount will be reflected in the statement of
financial position on December 31, 2020?
828,000
900,000/25 = 36 x 2years = 72,000 (2 year because jan man gasugod 2019, 2020)
900,000 – 72,000 = 828,000
900 since cost model if FV 960
Carlo Company provided the following data pertaining to a machinery on January 1, 2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the gain or loss on January 31, 2021?
60,000

Carlo Company provided the following data pertaining to a machinery on January 1.2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the depreciation expense for 2020?
390k

Carlo Company provided the following data pertaining to a machinery on January 1.2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the accumulated depreciation on December 31, 2020?
1,290,000

Carlo Company provided the following data pertaining to a machinery on January 1, 2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the Carrying Amount of machinery on December 31, 2020?
5,280,000

Carlo Company provided the following data pertaining to a machinery on January 1.2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the Retained Earnings for 2020?
90,000

Carlo Company provided the following data pertaining to a machinery on January 1, 2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the balance of revaluation surplus on January 31, 2020?
0

Consina Company acquired a machinery on January 1, 2019 for P900,000. At that date the machinery
had a useful life of 25 years. On December 31, 2019 the Fair Value of the building was P960,000 and on
December 31, 2020, the fair value of the building is P980,000. The building was classified as an
investment property.
If the company is using the cost model, how much amount will be reflected in the statement
of comprehensive income on December 31, 2020?
36,000
900,000/25 = 36,000

Carlo Company provided the following data pertaining to a machinery on January 1, 2020: Machinery -
P4.500,000: Accumulated Depreciation - 900,000: Age of Asset - 3 year. On July 1.2020. The machinery
was revalued with a replacement cost of P7.200.ooo. On January 31.2021 the machinery was sold for
P5,300.000. How much is the balance of revaluation surplus on December 31, 2020?
1,980,000

2.4 Graded Practice Set

THEORIES:

1. 1st statement: The discount rate used in estimating future cash flows shall be the current rate
after tax
2nd statement: Future cash flows do not include income tax receipts or payments

FALSE, TRUE

2. 1st statement: Fair Value is the present value of estimated future cash flows expected to arise
from the continuing use of an asset and from the disposal at the end of the useful life.
2nd statement: Active market is the market with the greatest volume and level of activity for the
asset or liability

BOTH FALSE

3. Which of the following is not a cost of disposal?

FINANCE COST

4. 1st statement: The recoverable amount of an individual corporate asset cannot be determined
unless management has decided to dispose of the asset.
2nd statement: Essentially, corporate assets generate cash inflows independently from other
assets.

TRUE, FALSE

5. Estimates of future cash flows normally would cover projections over a maximum of
5

6. What is the best evidence of fair value?

Quoted price in an active market for identical asset
 7. It is the fall in the market value of an asset so that the recoverable amount is now less than the
carrying amount in the statement of financial position. IMPAIRMENT

8. 1st statement: An impairment loss recognized for goodwill shall not be reversed in a subsequent
period.
2nd statement: The carrying amount of the asset shall be increased to the new recoverable
amount if there is a reversal of an impairment loss.

TRUE, TRUE

PROBLEM SOLVING:

1. On January 1, 2019, Army Company purchased a machinery with a cost of 3,000,000, useful life
of 8 years and no residual value. The entity used straight line depreciation. At year end, the
entity determined that impairment indicators are present. There is no change in the useful or
residual value.
The following information is available for impairment testing at each year end:

December 31,2020 December 31, 2021

FV less cost of disposal P2,137,500 P2,050,000

Value in Use 2,025,000 2,100,000

How much is the reversal on impairment loss on 2021?

2. On January 1, 2019, Army Company purchased a machinery with a cost of 3,000,000, useful life
of 8 years and no residual value. The entity used straight line depreciation. At year end, the
entity determined that impairment indicators are present. There is no change in the useful life or
residual value.
The following information is available for impairment testing at each year end:

December 31,2020 December 31, 2021

FV less cost of disposal P2,137,500 P2,050,000

Value in Use 2,025,000 2,100,000

How much is the depreciation expense on 2021? 356,250

How much is the depreciation expense on 2022?

3. On January 1, 2019, Army Company purchased a machinery with a cost of 3,000,000, useful life
of 8 years and no residual value. The entity used straight line depreciation. At year end, the
entity determined that impairment indicators are present. There is no change in the useful life or
residual value.
The following information is available for impairment testing at each year end:

December 31,2020 December 31, 2021

FV less cost of disposal P2,137,500 P2,050,000

Value in Use 2,025,000 2,100,000

How much is the impairment loss on 2020? 112,500

4. Fiesta company has determined that the Capping Division is a cash generating unit. The entity
calculated that the value in use of the division to be P2,750,000. The entity has also determined
that the Fair Value Less cost to dispose of the Plant is P1,625,000. The carrying amount of the
assets are as follows: Plant – P2,000,000; Machineries – P1,000,000; Inventories – P1,500,000;
Goodwill – P500,000. How much is the carrying amount of Inventories after the impairment?
825,000

5. Fiesta company has determined that the Capping Division is a cash generating unit. The entity
calculated that the value in use of the division to be P2,750,000. The entity has also determined
that the Fair Value Less cost to dispose of the Plant is P1,625,000. The carrying amount of the
assets are as follows: Plant – P2,000,000; Machineries – P1,000,000; Inventories – P1,500,000;
Goodwill – P500,000. How much is the impairment loss of CGU? 2,250,000

6. Fiesta company has determined that the Capping Division is a cash generating unit. The entity
calculated that the value in use of the division to be P2,750,000. The entity has also determined
that the Fair Value Less cost to dispose of the Plant is P1,625,000. The carrying amount of the
assets are as follows: Plant – P2,000,000; Machineries – P1,000,000; Inventories – P1,500,000;
Goodwill – P500,000.How much impairment loss to be allocated to Plant? 375,000

7. Fiesta company has determined that the Capping Division is a cash generating unit. The entity
calculated that the value in use of the division to be P2,750,000. The entity has also determined
that the Fair Value Less cost to dispose of the Plant is P1,625,000. The carrying amount of the
assets are as follows: Plant – P2,000,000; Machineries – P1,000,000; Inventories – P1,500,000;
Goodwill – P500,000.How much is the carrying amount of Machineries after the impairment?
550,000
 8. On January 1, 2019, Army Company purchased a machinery with a cost of 3,000,000, useful life
of 8 years and no residual value. The entity used straight line depreciation. At year end, the
entity determined that impairment indicators are present. There is no change in the useful life or
residual value.
The following information is available for impairment testing at each year end:

December 31,2020 December 31, 2021

FV less cost of disposal P2,137,500 P2.050,000

Value in Use 2.025.000 2.100.000

How much is the depreciation expense on 2022?

375,000

1. The capitalization rate is the weighted average of the borrowing costs applicable to all the
borrowings of the entity that are outstanding during the period. TRUE

2. Repayment of a grant related to income shall be applied first against any unamortized deferred
credit recognized in respect of the grant. TRUE

3. The borrowing costs incurred for general borrowings is the application of the capitalization rate
to the expenditure on the asset. TRUE

4. Borrowing cost may include exchange difference arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to interest costs. TRUE

5. An entity shall cease capitalizing borrowing costs when all the activities necessary to prepare the
qualifying assets for its intended use or sale are complete. FALSE

6. A qualifying asset is an asset that necessarily takes a short period of time to get ready for its
intended use. FALSE

7. In this Standard, government assistance does not include the provision of infrastructure by
improvement to the general transport and communication network and the supply of improved
facilities such as irrigation or water reticulation which is available on an ongoing indeterminate
basis for the benefit of an entire local community. TRUE
8. There are two methods of presentation in financial statements of grants (or the appropriate
portions of grants) related to assets and are regarded as acceptable alternatives. TRUE

9. One of the disclosures PAS 20 is that the accounting policy adopted for government grants,
including the methods of presentation adopted in the financial statements. TRUE

10. An entity shall suspend capitalization of borrowing costs during extended periods in which it
suspends active development of a qualifying asset. TRUE

11. A forgivable loan from government is not treated as a government grant when there is
reasonable assurance that the entity will meet the terms for forgiveness of the loan. FALSE

12. A government grant is not recognized until there is reasonable assurance that the entity will
comply with the conditions attaching to it, and that the grant will be received. TRUE

13. A government grant may become receivable by an entity as compensation for expenses or losses
incurred in previous period. Such a grant is recognized in the financial position of the period in
which it becomes receivable, with disclosure to ensure that its effect is clearly understood. TRUE

14. In some circumstances, a government grant may be awarded for the purpose of giving
immediate financial support to an entity rather than as an incentive to undertake specific
expenditures. TRUE

15. Borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset are included in the cost of that asset. TRUE

16. A government grant that becomes repayable shall be accounted for as a change in accounting
policy. FALSE

17. Government grants shall be recognized in profit or loss on a systematic basis over the periods in
which the entity recognizes as expenses the related costs for which the grants are intended to
compensate. TRUE

18. The borrowing cost incurred for specific borrowings is the actual borrowing incurred during the
period add any investment income on the temporary investment of those borrowings. FALSE
19. An entity is required to disclose the amount of borrowing cost capitalized and expense during
the period. FALSE

20. Borrowing costs are interest and other costs that entity incurs in connection with the borrowing
of funds. TRUE