Non-Current Assets Held for Sale and Discontinued Operations

Class Activity No. 5

Problem 1

On December 31, 2021, an entity classifies a building with an original cost of P20,000,000,
carrying amount of P8,000,000 and remaining useful life of 8 years as held for sale. The entity
uses the straight-line method of depreciation with no residual value for this asset. The fair value
of the building on December 31, 2021 is P7,000,000 while costs to sell are estimated at
P200,000. The building is being marketed at a sales price of P7,000,000.

On December 31, 2022, the building remains unsold. The fair value of the building on
December 31, 2022 is P6,800,000 while costs to sale are estimated at P200,000. The entity
decreased the sale price to P6,000,000.

On December 31, 2023, the building still remains unsold. The fair value of the building on
December 31, 2023 is P8,800,000 while costs to sell are estimated at P200,000. The failure to
locate a buyer and complete the sale is beyond the entity’s control. The entity further
decreased the sale price to P5,800,000.

On December 31, 2024, the building remains unsold. The fair value of the building on
December 31, 2024 is P9,000,000 while costs to sell are estimated at P200,000. The entity did
not further decrease the sale price.

Requirement: Provie the journal entries

Problem 2

An entity has three major product lines. Each product line comprises operations and cash flows
that can be clearly distinguished, operationally and for financial reporting purposes, from the
rest of the entity. During the year, the entity commits to a plan to sell Product Line 2. All the
conditions of PFRS 5 are met. The results of operations of the product lines during the year are
shown below:

Product Line 1 Product Line 2 Product Line 3

Revenue P2,000,000 P1,700,000 P2,400,000
Cost of goods sold (800,000) (1,100,000) (960,000)
Gross profit 1,200,000 600,000 1,440,000
Distribution costs (300,000) (450,000) (360,000)
Administrative expenses (150,000) (200,000) (180,000)
Profit before tax P750,000 P(50,000) P900,o000

Additional information:
 Product Line 2 has total assets of P6,000,000 and total liabilities of P4,500,000. The assets
have a fair value less costs to sell of P5,000,000.
 The entity expects to realize a gain of P200,000 on the sale, which is expected to occur in
the following period.
 The entity is subject to a 30% income tax rate. There are no temporary differences. All
gains and losses have tax consequences.
Requirement: Prepare the statement of profit or loss of the entity.

Problem 3

The statements of financial position and profit or loss of an entity on December 31, 2021 shows
the following information:

Cash and cash equivalents P1,800,000

Trade and other receivables 3,600,000
Inventories 10,800,000
Investment property (cost model) 4,200,000
Investment in associate 2,400,000
Property, plant and equipment 15,000,000
Total Assets P37,800,000

Trade and other payables P14,700,000

Current tax payable 5,400,000
Deferred tax liability 2,100,000
Ordinary share capital 6,000,000
Retained earnings – Dec. 31, 2021 8,100,000
Other components of equity 1,500,000
Total liabilities and equity P37,800,000

Revenue P6,720,000
Cost of sales (2,400,000)
Gross profit 4,320,000
Distribution costs (936,000)
Administrative expenses (1,080,000)
Finance costs (360,000)
Share of profit of associates 288,000
Profit for the year P2,232,000

On December 31, 2021, the entity commits to a plan to sell a component of an entity that
represents a major geographical area of operations. All the conditions of PFRS 5 are met.
Information on the component is as follows:

Financial Position
Accounts receivable 240,000
Inventory 672,000
Equipment 3,360,000
Accounts payable 432,000

Financial Performance
Revenue P2,000,000
Cost of sales 1,200,000
Distribution costs 280,000
Administrative expenses 432,000
Additional information:
 The entity determines that the equipment has a fair value less costs to sell of P1,600,000.
The carrying amounts of the other assets and the liability approximate their fair value less
costs to sell.

Requirements: Prepare the December 31, 2021 classified statement of financial position and
the statement of profit or loss of the entity. Ignore the effects of income taxes.