THEORIES

Instruction: Encircle the corresponding letter of the correct answer.

1. It is a component of an entity that has been disposed of or is classified as held for sale.

a. Non-current assets held for sale

b. Discontinued operation
c. Continued operation
d. Disposal group held for sale

2. Operations and cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity.

a. Component of the entity

b. Cash generating unit
c. Discontinued operation
d. Disposal group

3. A discontinued operation is a component of an entity that either has been disposed of or is

classified as held for sale and:

a. represents a separate major line of business or geographical area of operations;

b. is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations
c. is a subsidiary acquired exclusively with a view to re-sale
d. All of the above
e. None of the above

4. If an entity reclassifies an asset (or disposal group) directly from being held for sale to being
held for distribution to owners, or directly from being held for distribution to owners to being
held for sale, then the change in classification is considered a continuation of the original plan
of disposal. The entity:
a. shall not follow the guidance when classification ceases to account for this change. The
entity shall apply the classification, presentation and measurement requirements in this IFRS
that are applicable to the new method of disposal.
b. shall measure the non-current asset (or disposal group) in terms of the requirement of this
Standard and recognize any reduction or increase in the fair value less costs to sell/costs to
distribute of the non-current asset (or disposal group).
c. shall not change the date of classification. This does not preclude an extension of the period
required to complete a sale or a distribution to owners if the conditions are met for a sale
beyond one year.
d. All of the above

1|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION
5. An entity shall classify a non-current asset or disposal group as held for sale when the:

a. Carrying amount of the asset or disposal group will be recovered through sale
b. Carrying amount of the asset or disposal group will be recovered through continuing use
c. Non-current asset or disposal group will be abandoned.
d. Non-current asset or disposal group is idle or retired from active use.

6. An entity shall measure a non-current asset held for sale or discontinued operation classified
held for sale at

a. Carrying amount
b. Fair value less cost to sell
c. Lower of carrying amount and fair value less cost to sell
d. Higher of carrying amount and fair value less cost to sell

7. Which of the following statements regarding discontinued operations is valid?

a. The assets and liabilities of a disposal group classified as held for sale by an entity may be
offset and shown as a single item on the balance sheet of the entity.
b. The assets and liabilities of a disposal group of an entity must be shown separately in the
assets and liabilities section of the balance sheet and cannot be offset.
c. An adjustment in the subsequent period to the selling price of a component of an entity sold
must be reported as a retroactive adjustment in the prior-period FS on the entity in which the
discontinued operations was reported.
d. The gain or loss on disposal of a component of an entity classified as discontinued operation
need not be disclosed separately from the loss from operations of the discontinued segment.

8. The result of a discontinued operation, net of tax shall be presented

a. As a single amount on the face of income statement with no details disclose in the notes.
b. As a single amount on the face of income statement with appropriate disclosure of the details
in the notes.
c. Side by side with continuing operations with details for revenues and expenses attributable
to discontinued operation shown on the face of income statement.
d. In the notes to FS only.

9. An entity shall recognize any subsequent increase in the fair value less cost to sell of a non-
current asset held for sale or disposal group classified as held for sale as
a. Deferred gain as component of equity
b. Deferred gain as component of liability
c. Gain entirely to be included in the profit or loss
d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss
previously recognized.

2|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION
10. IFRS 5 states that a non-current asset that is to be abandoned should not be classified as
held for sale. The reason for this is because

a. The carrying amount will be recovered principally through continuous use

b. It is di difficult to value
c. It is unlikely that the non-current asset will be sold within 12 months
d. It is unlikely that there will be an active market for non-current asset

11. A noncurrent asset or disposal group shall be classified as held for sale when

a. The sale is highly probable

b. The asset is available for immediate sale in the present condition
c. The sale is probable and the asset is available for sale in the present condition
d. The sale is highly probable and the asset is available for immediate sale in the present
condition.

12. If the fair value less cost to sell is higher than the carrying amount of a non-current asset
held for sale, the difference is

a. Ignored
b. Accounted for as an impairment loss
c. Deferred gain as component of equity
d. Gain recognized in profit or loss

13. Non-current asset held for sale shall be presented in the statement of financial position as

a. Non-current asset
b. Current asset
c. Excluded from asset section but disclosed.
d. Either current or non-current

14. An entity put back an asset that was previously recognized as “held for sale” into active
use, thus, the criteria for the asset to be classified as “held for sale” no longer applies. For
accounting purposes, the entity shall:

a. Continue to classify the asset as held for sale, until such date that the asset is retired or
disposed of.
b. Reclassify the asset into previous classification at the lower of fair value less cost to sell and
the carrying amount when the asset was classified as held for sale.
c. Continue to classify the asset as held for sale and resume the depreciation.
d. Reclassify the asset into previous classification, measuring it at the lower of carrying amount
had the asset not been classified as held for sale and its recoverable amount as determined
under IAS36, and then subject the asset to depreciation/amortization.

3|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION
15. An entity classified a non-current asset accounted for under the cost model as held for sale
on December 31, 2018. Because no offers were received at an acceptable price, the entity
decide on July 1, 2019 not to sell the asset, but continue to use it. In accordance with IFRS 5,
the asset should be measured on July 1, 2019 at:

a. Lower of carrying amount and recoverable amount

b. The higher of carrying amount and recoverable amount
c. The lower of carrying amount on the basis that it had never been classified as held for sale
and its recoverable amount.
d. The higher of carrying amount on the basis that it had never been classified as held for sale
and its recoverable amount.

16. The discontinued operation section of the statement of comprehensive income is comprised
of which one of the following?

a. Profit from operation of the discontinued component of an entity and gain or loss from the
disposal of the discontinued component.
b. Post-tax profit or loss from the operation of the discontinued component, and the gain or
loss from disposal of the discontinued component
c. Post-tax profit or loss from the operation of the discontinued component, and the post-tax
gain or loss recognized on the measurement to fair value less cost to sell of net assets held for
sale.
d. Post-tax profit or loss of the discontinued operations of the component, and the post-tax
gain or loss recognized on the measurement to fair value less cost to sell or on the disposal of
the assets of the discontinued operations.

PROBLEMS

Instruction: Please show your solutions.

Problem 1

Rodnick Company accounts noncurrent assets using the revaluation model. On June 30,
2019, Rodnick Company committed to sell its land due to an active market and classified the
land as held for sale. At that date, the carrying amount was P2, 900,000 and the balance of the
revaluation surplus was P200,000.

On June 30, 2019, the fair value was estimated at P3, 300,000 and the cost of disposal at P300,
000. On December 31, 2019, the fair value was estimated at P3, 350,000 and the cost of
disposal at P250, 000.

During 2020, Rodnick Company sold the land for P3, 100,000 to Pandac Corporation.

1. What is the adjusted carrying amount of the land on June 30, 2019?
4|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION
2. What is the adjusted carrying amount of the land on December 31, 2019?
3. What total amount should be reported as impairment loss for 2019?
4. What is the revaluation surplus on December 31, 2019?
5. Provide the necessary journal entry to record the sale of land.

Problem 2

Pasucal Company purchased equipment for P5, 000,000 on January 1, 2019 with a useful life
of 10 years with a residual value of P500, 000. On December 31, 2020, the entity classified
the asset as held for sale.

The fair value of the equipment on December 31, 2020 is P4, 200,000 and the cost of disposal
is P50, 000.

On December 31, 2021, the fair value of the equipment is P3, 500,00 and the cost of disposal
is P100, 000. On this date, the entity believed that the equipment is probable not to be sold due
to the absence of active market. After reviewing PFRS 5, the entity decided not to sell the asset
but to continue to use it. The value in use if the said equipment on date of reclassification is
P3, 600, 000.

1. What is the impairment loss to be recognized on December 31, 2020?

2. What is the measurement of the equipment that ceases to be held for sale on December 31,
2021?
3. What amount should be recognized as gain or loss as a result of the reclassification in 2021?

Problem 3

On January 1, 2019, Penyaranda Company had a machine with cost of P5, 000,000 and
accumulated depreciation of P3,750,000. The remaining useful life of the machine is 2 years.

On June 30, 2019, the entity classified the machine as held for sale and decided to sell the
machine within one year. The machine had an estimated selling price of P500, 000 and cost of
disposal will be P50, 000 on this date.

On December 31, 2019, the estimated selling price of the machine had increased to P750, 000
with estimated disposal cost of P100, 000.

On July 1, 2020, Penyaranda sold the machine for P200, 000 to Pasucal Company.

1. What is the impairment loss to be recognized on June 30, 2019?

2. What amount should be recognized as gain on reversal of impairment on December 31,
2019?
3. What amount should be reported as gain or loss on disposal of the machine on 2020?

5|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION
Problem 4

On November 30, 202 Kathniel Company approved a plan to dispose a cash generating unit
(CGU) of its business. The carrying value of CGU’s net assets was P800,000. During
December, disposal costs incurred totaled P75,000.

During the period January through November 2022, the CGU has a total revenue of P5,000,000
and total selling and administrative costs of P5,080,000. The selling price of the CGU’s net
assets on

December 31, 2022 is P980,000. Disposal costs of P150,000 is expected to be incurred on the
sale. The company is subject to 25% tax rate and reports profit from continuing operation.

Determine the single amount that will be reported as “Discontinued Operations” in profit or
loss for the year ended December 31, 2022.

6|Page NON- CURRENT ASSET HELD FOR SALE AND DI SCONTI NUED OPERATION