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Homework answers / question archive / Jose Rizal Memorial State University - Dipolog City Campus CBA AECC3 Module 9 NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATION (PFRS 5) Exercises/Assignments Answer the following Problems
Jose Rizal Memorial State University - Dipolog City Campus
CBA AECC3
Module 9
NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATION (PFRS 5)
Exercises/Assignments
Answer the following Problems.
Use the following information for the next two questions: VISAGE APPEARANCE Co. is committed to a plan to sell its headquarters building and has initiated actions to locate a buyer. As of this date, the building has a carrying amount of ?5,000,000, a fair value of ?6,000,000 and estimated costs to sell of
?200,000.
1. VISAGE Co. has an intention to transfer ownership of a building to a buyer after it vacates the building. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ?5,000,000.
b. Included under property, plant and equipment at ?5,800,000.
c. Classified as held for sale at ?5,000,000
d. Classified as held for sale at ?5,800,000
2. VISAGE Co. will continue to use the building until the construction of a new headquarters is completed. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ?5,000,000.
b. Included under property, plant and equipment at ?5,800,000.
c. Classified as held for sale at ?5,000,000
d. Classified as held for sale at ?5,800,000
Use the following information for the next two questions: DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. As of this date, the building has a carrying amount of ?6,000,000, a fair value of ?5,000,000 and estimated costs to sell of ?200,000. At the plan commitment date, there is a backlog of uncompleted customer orders.
3. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations. Any uncompleted customer orders at the sale date will be transferred to the buyer. The transfer of uncompleted customer orders at the sale date will not affect the timing of the transfer of the facility. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ?6,000,000.
b. Included under property, plant and equipment at ?4,800,000.
c. Classified as held for sale at ?6,000,000
d. Classified as held for sale at ?4,800,000
4. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its operations. The entity does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ?6,000,000.
b. Included under property, plant and equipment at ?4,800,000.
c. Classified as held for sale at ?6,000,000
d. Classified as held for sale at ?4,800,000
Use the following information for the next two questions: DEMOTIC POPULAR Co. acquires through foreclosure a property comprising land and buildings that it intends to sell. The fair value of the land and buildings is ?6,000,000 and costs to sell are ?200,000. The related defaulted receivables have a carrying amount of ?5,000,000.
5. The entity does not intend to transfer the property to a buyer until after it completes renovations to increase the property’s sales value. How should DEMOTIC Co. classify the land and buildings?
a. Included under property, plant and equipment at ?5,000,000.
b. Included under investment property at ?5,000,000.
c. Included under investment property at ?5,800,000.
d. Classified as held for sale at ?5,800,000
6. After the renovations are completed and the property is classified as held for sale but before a firm purchase commitment is obtained, the entity becomes aware of environmental damage requiring remediation. The entity still intends to sell the property. However, the entity does not have the ability to transfer the property to a buyer until after the remediation is completed. The costs of renovations made
totaled ?200,000. The estimated costs of remediation are ?100,000. How should DEMOTIC Co. classify the land and buildings?
a. Included under property, plant and equipment at ?5,700,000.
b. Included under investment property at ?6,000,000.
c. Included under investment property at ?5,700,000.
d. Classified as held for sale at ?5,700,000
7. PERAMBULATE STROLL Co. is a commercial leasing and finance company. As of year-end, PERAMBULATE holds equipment that is available either for sale or lease. PERAMBULATE is not yet decided whether to sell or to lease the equipment. The equipment has a carrying amount of ?1,000,000, fair value of ?1,200,000 and costs to sell of ?50,000. How should PERAMBULATE Co. classify the equipment?
a. Inventory, ?1,000,000 b. Investment property, ?1,250,000
c. Held for sale, ?1,150,000 d. Held for sale, ?1,000,000
8. PHILANDERING FLIRTING Co. is committed to a plan to sell a property that is in use. The transfer of the property will be accounted for as a sale and finance leaseback. The property has a carrying amount of
?1,000,000, fair value of ?1,200,000 and costs to sell of ?50,000. How should PHILANDERING Co. classify the equipment?
a. Property, plant and equipment, ?1,000,000
b. Investment property, ?1,250,000
c. Held for sale, ?1,150,000
d. Inventory, ?1,000,000
9. An entity in the power generating industry is committed to a plan to sell a disposal group that represents a significant portion of its regulated operations. The sale requires regulatory approval, which could extend the period required to complete the sale beyond one year. Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm purchase commitment is obtained. However, a firm purchase commitment is highly probable within one year. The disposal group has a carrying amount of ?10,000,000 and fair value less costs to sell of ?10,600,000. How should the entity classify the disposal group?
a. Held for sale, ?10.6M b. Held for sale, ?10M
c. Under previous classifications, ?10M d. Under previous classifications, ?10.6M
10. An entity is committed to a plan to sell a manufacturing facility in its present condition and classifies the facility as held for sale at that date. After a firm purchase commitment is obtained, the buyer’s inspection of the property identifies environmental damage not previously known to exist. The entity is required by the buyer to make good the damage, which will extend the period required to complete the sale beyond one year. However, the entity has initiated actions to make good the damage, and satisfactory rectification of the damage is highly probable. The manufacturing facility has a carrying amount of ?10,000,000 and fair value less costs to sell of ?10,600,000. How should the entity classify the manufacturing facility?
a. Held for sale, ?10.6M b. Held for sale, ?10M
c. PPE, ?10M d. PPE, ?10.6M
Use the following information for the next two questions: In 20x1, FORGETIVE CREATIVE Co. classified a property as held for sale. The carrying amount prior to classification is ?400,000 while fair value less cost to sell is ?360,000. The property is being sold at ?360,000.
During 20x1, the market conditions that existed at the date the asset was classified initially as held for sale deteriorate and, as a result, the asset is not sold by the end of that period. During that period, FORGETIVE actively solicited but did not receive any reasonable offers to purchase the asset and, in response, FORGETIVE reduced the price from ?360,000 to ?320,000. The fair value less costs to sell on December 31, 20x1 is ?340,000.
11. How should FORGETIVE Co. classify the property in its 20x1 annual financial statements?
a. Held for sale, ?320,000 b. Held for sale, ?340,000
c. PPE, ?340,000 d. PPE, ?400,000
12. During 20x2, the market conditions deteriorate further, and the asset is not sold by December 31, 20x2. FORGETIVE Co. believes that the market conditions will improve and has not further reduced the price of the asset. The fair value less costs to sell on December 31, 20x2 is ?300,000. If the property was not classified as held for sale in 20x1, its carrying amount by this time would have been ?350,000.
a. Held for sale, ?300,000 b. Held for sale, ?320,000
c. PPE, ?300,000 d. PPE, ?350,000
13. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year financial statements. A land included in WAYFARER’s property, plant and equipment that did not qualify as held for sale as of December 31, 20x1 was actually sold on January 5, 20x2. The financial statements were authorized for issue on March 1, 20x2. On December 31, 20x1, WAYFARER has total current assets of ?9,000,000. Not included in this amount is the fair value less costs to sell of the land amounting to ?1,000,000. How much is the total current assets current in WAYFARER’s December 31, 20x1 financial statements?
a. ?8,000,000 b. ?9,000,000
c. ?10,000,000 d. ?11,000,000
14. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building with a historical cost of ?4,000,000 and accumulated depreciation of ?2,400,000 as held for sale. All of the criteria under PFRS 5 are complied with. On that date, the land has a fair value of ?1,400,000 and cost to sell of ?80,000.
The entry on December 31, 20x1 includes
a. a debit to building for ?1,320,000
b. a credit to accumulated depreciation for ?2,400,000
c. a debit to impairment loss for ?280,000
d. No reclassification entry will be made on December 31, 20x1
15. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with a carrying amount of ?1,600,000 and fair value less cost to sell of ?1,320,000 as held for sale. The building was not sold in 20x2. However, the exception to the one-year requirement was met. On December 31, 20x2, the fair value less cost to sell of building is ?1,240,000.
The building was not sold in 20x3. However, the exception to the one-year requirement was still met. On December 31, 20x3, the fair value less cost to sell of building increased to ?1,680,000. How much is the gain on reversal of impairment to be recognized on December 31, 20x3?
a. 440,000 b. 360,000 c. 280,000 d. 0
16. How would the reduction in the value of the assets on classification as held for sale be treated in the financial statements?
a. The entity recognizes a loss of ?4.4M immediately before classification as held for sale and then recognizes an impairment loss of ?7.6M.
b. The entity recognizes an impairment loss of ?12 million.
c. The entity recognizes an impairment loss of ?7.6M.
d. The entity recognizes a loss of ?12M immediately before classifying the disposal group as held for sale.
17. How much is the carrying amount of the inventory after classification of the disposal group as held for sale?
a. 8,800,000 b. 7,950,576 c. 7,899,324 d. 7,765,391
18. How much is the carrying amount of the Investment property (at cost model) after classification of the disposal group as held for sale?
a. 22,800,000 b. 21,859,794 c. 21,786,665 d. 20,766,298
19. How much is the carrying amount of the PPE (at cost model) after classification of the disposal group as held for sale?
a. 16,000,000 b. 15,780,740 c. 15,340,206 d. 15,211,612
20. On December 31, 20x1, INGENIOUS NATURAL Co. classified its building with a carrying amount of
?1,600,000 and fair value less costs to sell of ?1,320,000 as held for sale. Impairment loss of ?280,000 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, 20x2, 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, 20x2 is ?1,240,000 while the value in use is ?1,220,000.
How much is the carrying amount of the building upon reclassification back to property, plant and equipment?
a. 1,220,000 b. 1,320,000 c. 1,240,000 d. 1,200,000
21. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to sell a component. On that date, INIMICAL estimated the gain from the disposal to be made in 20x2 at ?2,000,000 and the operating losses prior to the date of sale to be ?1,200,000. As a result of the sale, the component’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 20x1 and 20x2 were ?2,800,000 and ?2,600,000, respectively, and the actual gain on disposal of the component in 20x2 was ?1,600,000. INIMICAL’s income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other temporary differences during the year.
What single, post-tax amounts should be reported for discontinued operations in INIMICAL’s comparative 20x2 and 20x1 income statements, respectively?
a. (1,960,000), (700,000) b. (560,000), (1,960,000)
c. (650,000), (1,950,000) d. (700,000), (1,960,000)
22. On April 30, 20x1, ABROGATE ABOLISH Co. 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, 20x1, the component earned operating profit of ?400,000 and from May 1 to December 31, 20x1, the segment suffered operating losses of ?200,000.
The net assets of the component has a carrying amount of ?32,000,000 as of April 30, 20x1. The fair value less costs to sell of the component is ?26,000,000. Additional estimated disposal loss includes severance pay of ?220,000 and employee relocation costs of ?100,000, both of which are directly associated with the decision to dispose of the segment. ABROGATE’s income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other temporary differences during the year.
How much is the profit (loss) from discontinued operations to be reported in ABROGATE's statement of profit or loss and other comprehensive income for the year ended December 31, 20x1?
a. 4,564,000 b. 4,060,000 c. 4,340,000 d. 4,284,000
23. PFRS 5 requires
a. assets that meet the criteria to be classified as held for sale to be measured at fair value less costs to sell
b. depreciation on held for sale assets to cease but amortization should still be provided for
c. assets that meet the criteria to be classified as held for sale to be presented separately on the face of the statement of financial position and the results of discontinued operations to be presented separately in the statement of profit or loss and other comprehensive income.
d. assets and liabilities of a disposal group to be off-set and presented as one item on the face of the statement of financial position
24. Which of the following statements is incorrect?
a. PFRS 5 specifies that assets or disposal groups that are classified as held for sale are carried at fair value less costs to sell.
b. PFRS 5 specifies that an asset classified as held for sale, or included within a disposal group that is classified as held for sale, is not depreciated.
c. PFRS 5 specifies that an asset classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, are presented separately in the statement of financial position.
d. PFRS 5 specifies that assets classified as non-current in accordance with PAS 1 Presentation of Financial Statements shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this PFRS.
25. A non-current asset is an asset that
a. is being depreciated or amortized
b. is not expected to be realized within 12 months
c. is restricted cash
d. does not meet the definition of a current asset.
26. Which of the following assets is outside the scope of PFRS 5?
a. Property, plant and equipment b. Investment property carried under the Cost model
c. Deferred tax assets d. Intangible assets
27. Which of the following assets is within the scope of PFRS 5?
a. Assets arising from employee benefits
b. Investment property carried under the fair value model
c. Deferred tax assets
d. Intangible assets
28. To which of the following types of asset do the measurement provisions of PFRS5 Non-current assets held for sale and discontinued operations apply?
I. Financial assets
II. Intangible development assets
III. Leasehold buildings
IV. Biological assets
V. Contractual rights under insurance contracts
a. I, IV, V b. II, III c. II, III, IV d. III
29. It is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated or if it is an operation within such a cash-generating.
a. discontinued operations c. cash generating unit b. disposal group d. component of an entity
30. Assets which are previously classified as non-current in accordance with PAS 1 Presentation of Financial Statements when they meet the criteria to be classified as held for sale are to be presented separately on the face of the balance sheet and included as
a. Non-current asset b. Current asset c. Neither current nor noncurrent d. Any of these
31. An entity shall classify a non-current asset (or disposal group) as held for sale when
a. the non-current asset’s (or disposal group’s) carrying amount will be recovered principally through continuing use rather than through a sale transaction.
b. the non-current asset’s (or disposal group’s) carrying amount will be recovered principally through a sale transaction rather than through continuing use.
c. the non-current asset (or disposal group) has actually been disposed of.
d. the non-current asset (or disposal group) is abandoned or taken out temporarily from use.
32. When the economic benefits from a non-current asset (or disposal group) will be realized more if it is to be sold rather than continually used
a. the non-current asset (or disposal group) will be classified as “held for sale” and presented as part of current assets in a classified statement of financial position
b. the non-current asset (or disposal group) will be classified as “held for sale” and presented as part of noncurrent assets in a classified statement of financial position
c. the non-current asset (or disposal group) will be classified as “held for sale” only if management expects to earn profit from the disposal
d. the non-current asset (or disposal group) will be classified as “held for sale” only if management expects to abandon the non-current asset (or disposal group)
33. A non-current asset or a disposal group shall be classified as held for sale if which of the following conditions are met. I. the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary II. the sale must be highly probable.
a. I only b. II only c. I and II d. I or II
34. A non-current asset or a disposal group shall be classified as held for sale if the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary and the sale is highly probable. Sale is highly probable if I. an appropriate level of management is committed to a plan to sell the asset II. an active program to locate a buyer and complete the plan will yet to be initiated III. the asset or disposal group must be actively marketed for sale at a price that reflects a reasonable profit IV. the sale (or exchange with commercial substance) should be expected to qualify for recognition as a completed sale within two years from the date of classification V. actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn:
a. I, V b. I, II, V c. I, II, III, V d. I, II, III, IV, V
35. A non-current asset or a disposal group shall be classified as held for sale if certain conditions provided under PFRS 5 are met. Which of the following is among those conditions?
a. the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary and the sale must be probable.
b. an appropriate level of management must have received a purchase commitment for the sale of the asset
c. an active program to locate a buyer and complete the plan will yet to be initiated
d. actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn:
36. In order for a non-current asset to be classified as held-for-sale the sale must be highly probable.
Highly probable means
a. that the future sale will occur
b. that the future sale might occur
c. management must be committed to selling the asset and must be actively looking for a buyer
d. the sale contract has been signed
37. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. “Highly probable” means that
a. The future sale is likely to occur. b. The future sale is more likely than not to occur.
c. The sale is certain. d. The probability is higher than more likely than not.
38. In accordance with PFRS 5 Non-current Assets Held for Sale and Discontinued Operations, an asset should be classified as held for sale when which of the following criteria are satisfied?
I. The sale is highly probable
II. The asset has a readily observable market value
III. The sale is expected to be completed within 3 months of the end of the reporting period
IV. The asset is available for immediate sale in its present condition
a. I, IV b. I, II, IV c. I, III, IV d. I, II, III, IV
39. The directors of SPOONY FOOLISHLY IN LOVED Company decided at a board meeting on February 28, 20x1 that a major machine tool should be sold. Trade magazines reported recent transactions in noncurrent assets of a similar age at ?50,000, but the board decided that the asking price should be
?75,000. The board also decided that as a program of repairs to the tool needed to be carried out, an agent should not be contracted with for the sale of the item until the repairs were completed, which was on May 31, 20x1. On July 31, 20x1 the board agreed to reduce the asking price to ?50,000. A deal was agreed with a buyer on August 31, 20x1 and completion of the sale took place on November 30, 20x1. In accordance with PFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the asset should be classified as held for sale on
a. February 28, 20x1 c. July 31, 20x1 b. May 31, 20x1 d. August 31, 20x1
40. Significantly more likely than probable.
a. certain b. highly probable
c. 90% to 99% probability d. reasonably possible
