ILLUSTRATIVE EXAMPLES

Noncurrent Asset Held for Sale and Discontinued Operations

Noncurrent Asset Held for Sale

1. [Individual asset] On December 31, 2025, Pinnacle Company classified its building with a historical cost
of P1,000,000 and accumulated depreciation of P600,000 as held for sale. All of the criteria under PFRS
5 are complied with. On that date, the land has a fair value of P350,000 and cost to sell of P20,000.

The building was not sold in 2026. However, the exception to the one-year requirement was met. On
December 31, 2026, the fair value less cost to sell of the building is P310,000.

The building was not sold in 2027. However, the exception to the one-year requirement was still met.
On December 31, 2027, the fair value less cost to sell of the building increased to P420,000.

Requirement: Prepare all the journal entries from 2025 to 2027.

2. [Disposal group] On December 31, 2025, Mr. Accounting Company plans to dispose of a group of its
assets. Information on these assets is shown below:

CA on Dec. 31, 2025 before FV as remeasured immediately

classification as HFS before classification as HFS

Inventory P2,400,000 P2,200,000

Investment in equity securities – FVOCI 1,800,000 1,500,000
Investment property 5,700,000 5,700,000
PPE 4,600,000 4,000,000
Goodwill 1,500,000 1,500,000
Total P16,000,000 P14,900,000

After each of the individual assets have been measured in accordance with the PFRSs applicable to
each individual asset, Mr. Accounting estimates that the fair value less costs to sell of the disposal
group amounts to P13,000,000. The inventory is measured at LCNRV and the FVOCI at fair value.

Requirements: Compute for the impairment loss and prepare the journal entry.
3. [Changes to a plan of sale] On December 31, 2025, CPA Company classified its building with a carrying
amount of P400,000 and fair value less cost to sell of P330,000 as held for sale. Impairment loss of
P70,000 was recognized on that date. The building has a remaining useful life of 4 years and it was
depreciated using the straight-line method.

As of December 31, 2026, the building was not yet sold and management decided not to sell the
building anymore. The fair value less cost to sell of the building on December 31, 2026 is P310,000
while the value in use is P305,000.

Requirement: Compute for the measurement of the building upon its reclassification back to PPE on
December 31, 2026 and prepare the journal entry.

Discontinued Operations

4. [Comparative reporting] On December 31, 2025, BSA Company entered into an agreement to sell a
component. As a result of the sale, the component’s operations and cash flows will be eliminated from
the entity’s operations and cash flows will be eliminated from the entity’s operations and the entity
will not have any significant continuing post-sale involvement in the component’s operations.
Accordingly, the component was classified as held for sale and discontinued operations.

The component’s actual operating losses in 2025 and 2026 were P700,000 and P650,000, respectively,
and the actual gain on disposal of the component in 2026 was P400,000. BSA’s income tax rate is 30%.
Any income tax benefit is expected to be realized. Income from continuing operations amounted to
P1,000,000 for 2025 and 2026.

Requirement: Determine the single, post-tax amounts that should be reported for discontinued
operations in BSA Company’s comparative 2025 and 2026 income statements.

5. On April 30, 2025, ABC Company approved a plan to dispose of a component of its operations. The
disposal meets the requirements for classification as discontinued operations.

From January 1 to April 30, 2025, the component earned operating profit of P100,000 and from May 1
to December 31, 2025, the segment suffered operating losses of P50,000.

The net assets of the component has a carrying amount of P8,000,000 as of April 30, 2025. The fair
value less costs to sell of the component is P6,500,000. Additional estimated disposal loss includes
separation pay of P55,000 and employee relocation costs of P25,000, both of which are directly
associated with the decision to dispose of the segment. ABC’s income tax rate is 30%. Income from
continuing operations amounted to P2,000,000 in 2025.

Requirement: Compute for the profit (loss) from discontinued operations to be reported in ABC’s
Statement of Comprehensive Income for the year ended December 31, 2025.