Chapter 11 advacc 1 Dayag

Chapter 11 Problem I 1. • Contributions of cash by the operators Cash KK Company Cerise Company Contribution by joint operators.

360,000 180,000 180,000

• Use of cash and loan to buy machinery & equipment and raw materials Machinery and equipment 96,000 Cash 60,000 Loans payable – machinery and equipment 36,000 Contribution by joint operators. Materials Accounts payable Acquisition of materials. • Labor incurrence Payroll Cash Accrued payroll Annual labor. • Loans from the bank Cash Bank loans payable Amount borrowed.

78,000 78,000

86,400 84,000 2,400

72,000 72,000

• Repayment of loan – machinery and equipment and other factory expenses Loan payable – machinery and equipment 12,000 Cash 12,000 Partial payment of loan. Accounts payable Cash Payment of trade creditors. Factory overhead control – heat, light and power Cash Payment of manufacturing expenses such as heat, light and power. • Depreciation of machinery and equipment Factory overhead control – depreciation Accumulated depreciation Depreciation of equipment.

50,400 50,400 156,000 156,000

9,600 9,600

• Transfer of materials, labor and overhead to Work-in-Process Work-in-process Payroll

309,600 86,400

Materials Factory overhead control – heat, light and power Factory overhead control – depreciation Allocation of costs to work-in-process

57,600 156,000 9,600

• Transfer of Work-in-Process to Finished Goods Inventory. Finished goods Work-in-process Allocation to finished goods

216,000 216,000

• Transfer of Finished Goods Inventory to Joint Operators throughout the year KK Company 96,000 DD Company 96,000 Finished goods 192,000 Delivery of output to joint operators. 2. Cash Contribution – Drei Work-in-Process 180,000 Labor Contribution – Cerise 86,400 180,000 Materials Bank loan 57,600 60,000 Factory Overhead – heat, etc. 156,000 Factory Overhead – depreciation Balance, 12/31/x4 9,600 57,600 Balance, 12/31/x4 93,600 Total assets, P282,000 b. KK’s investment, P84,000 c. DD’s investment, P84,000 December 31, 20x4 Assets Current Assets Cash Finished goods inventory Work-in-Process inventory Materials inventory Total current assets Non-current Assets Equipment Less: Accumulated depreciation Total Assets

60,000

Machinery and equipment 3. a.

216,000 to Finished Goods 84,000 Labor 12,000

Machinery and equipment

50,400 Accounts payable 156,000 Factory overhead control

Liabilities and Net Assets Current Liabilities Accrued payroll Accounts payable Non-current Liabilities Bank loan payable Loan payable – machinery and equipment Total Liabilities

P 57,600 24,000 93,600 20,400 P 96,000 9,600

P

2,400 27,600

P 60,000 24,000

P 195,600 86,400 P282,000

P 30,000 __84,000 P 114,000

Net Assets Total Liabilities and Net Assets Joint Operator’s Equity KK Company: Contributions – January 1, 20x4 Cost of inventory distributed DD Company: Contributions – January 1, 20x4 Cost of inventory distributed Total Joint Operator’s Equity

168,000 P282,000 P 180,000 ( 96,000) P 180,000 ( 96,000)

P 84,000 P 84,000 P168,000

Problem II 1. Ayala Corp. shall account for its interest in the joint operation as follows: Current assets (50% x P720,000) Property, plant and equipment (60% x P1,200,000) Expenses (60% x 720,000) Liabilities (75% x P960,000) Revenue (55% x P1,200,000) Interests in Joint Operation To recognize the share of Entity A in the assets, liabilities, revenues and expenses as follows:

360,000 720,000 432,000 720,000 660,000 132,000

2. The assets, liabilities, revenue and expenses are recognized and combined with those of Ayala’s own financial statements. The interest in joint operations at the end of the reporting period is reduced to P228,000, computed as follows: Interests in Joint Operation Less: Share in assets, liabilities, revenues and expenses Interest in operation, ending balance

P 360,000 132,000 P 228,000

Problem III 1. The joint operator, Entity A account for their interests in the joint operation as follows: Entity X—in 20x4 Profit or loss (construction costs) Cash/Accumulated depreciation/Trade payables To recognize the construction costs incurred in 20x4

4,800,000

Cash Profit or loss (construction revenue) To recognize the construction costs incurred in 20x4

8,400,000

4,800,000

8,400,000

Entity Y—in 20x4 Profit or loss (construction costs) Cash/Accumulated depreciation/Trade payables To recognize the construction costs incurred in 20x4

7,200,000

Cash Profit or loss (construction revenue) To recognize the construction costs incurred in 20x4

8,400,000

7,200,000

8,400,000

Problem IV The joint operator, Entity K account for their interests in the joint operation as follows:

January 1, 20x4 (P12,000,000 / 5 = P2,400,000) Property, plant and equipment (interest in an aircraft) Cash To recognize the purchase of an ownership-interest in a jointly controlled aircraft.

2,400,000 2,400,000

In 20x4 Cash Profit or loss (rental income) To recognize income earned in renting to others the use of the aircraft in 20x4.

12,000 12,000

Profit or loss (aircraft operating expenses) Cash To recognize the costs of running an aircraft in 20x4.

180,000

Profit or loss (depreciation expense) Accumulated depreciation (interest in an aircraft To recognize depreciation of an ownership-interest in a jointly controlled aircraft in 20x4: P12,000,000/20 years = P600,000/5 operators = P120,000 share for each joint operator.

120,000

180,000

120,000

Problem V 1. The following are the summaries of the above transactions for a joint operation in the form of a partnership: Event a. b. c. d. e.

Investment in Joint Operation Dr. Cr. P 12,000 120,000

AA Dr.

BB Cr. P12,000 120,000

Dr.

CC Cr.

Dr.

Cr. P 6,000

6,000 180,000

120,000 P588,000

P204,000 3,600

P60,000 P312,000 3,600

___3,000

________

________

______

P72,000 3,600 6,000 _______

10,800

f. *

________

6,000 ___3,000

NI**

P318,000 _297,000 P597,000

P597,000 ________ P597,000

P210,600 ________ P210,600

P252,000 __112,200 P364,200

P315,600 ________ P315,600

P 60,000 _147,000 P195,000

P81,600 _______ P81,600

_______ P 16,800 31,800 P48,600

_______ P597,000

________ P597,000

_153,600 P364,200

________ P364,200

________ P315,600

_120,600 P315,600

_______ P81,600

_33,000 P81,600

Cash** * Settlement Totals

* purchases, P300,000; cost of goods sold, P294,000; ending inventory P6,000 x 50% = P3,000. **NI – Net Income Allocation Allowance for cleaning-up operations

AA

BB

CC P 3,000

Total P 3,000

Commission: Aljon: 40% of P204,000

P81,600

Elerie: 40% of P312,000 Mac: 40% of P72,000

P124,80 0

81,600 28,800

10,20 30,600 0 _______ P112,2 P135,00 P31,80 Total 00 0 0 **Total credits of P597,000 – Total debits of P318,000 = P279,000, net income. Balance (75%: 25%)

124,800 28,800 40,80 0 P279,00 0

2. The cash settlement entry (refer to No. 1 for the computation of settlement) would be as follows: AA, capital 153,600 BB, capital 120,600 CC, capital 33,000 Therefore, BB will pay P120,600 and CC will pay, P33,000 to AA as final settlement for the joint operations. Problem VI Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Cost of investment Consideration transferred Less: Book value of stockholders’ equity of Son: Common stock (P3,600,000 x 30%) Retained earnings (P1,080,000 x 30%) Allocated excess (excess of cost over book value) Less: Over/under valuation of assets and liabilities: Increase in inventory (P240,000 x 30%) Increase in land (P960,000 x 30%) Increase in building (P600,000 x 30%) Decrease in equipment (P840,000 x 30%) Increase in bonds payable (P120,000 x 30%)

P2,016,000 P 1,080,000 324,000 P 72,000 288,000 180,000 ( 252,000) ( 360,000)

1,404,000 612,000

P

Positive excess: Goodwill (excess of cost over fair value)

252,000 P 360,000

The over/under valuation of assets and liabilities are summarized as follows: Anton Co. Anton Co. (Over) Under Book value Fair value Valuation Inventories (sold in 20x4) P1,200,000 P1,440,000 P 240,000 Land 1,080,000 2,040,000 960,000 Buildings – net ( 10 year remaining life) 1,800,000 2,400,000 600,000 Equipment – net ( 7 year remaining life) 1,440,000 600,000 ( 840,000) (1,320,000 Bonds payable (due January 1, 20x9) ( 1,200,000) ) ( 120,000) Net P4,320,000 P5,160,000 P 840,000 A summary or depreciation and amortization adjustments is as follows: Over/ 30% Account Adjustments to be amortized Under thereof Life P Inventories (sold in 20x4) 240,000 P 72,000 1 Land 960,000 288,000 -

Current Year(20x4) P 72,000 -

Buildings – net ( 10 year remaining life) Equipment – net ( 7 year remaining life) Bonds payable (due January 1, 20x9) Net

600,000 ( 840,000 ) ( 120,00 0) P 840,000

180,000 ( 252,000 ) ( 36,000 ) P 252,000

10

18,000

7

(36,000)

5

( 7,200) P 46,800

The following are entries recorded by the parent in 20x4 in relation to its investment in joint venture: January 1, 20x4: (1) Investment in DD Company 2,016,000 Cash 2,016,000 Acquired 30% joint control in DD Company. January 1, 20x4 – December 31, 20x4: (2) Cash Investment in DD Company (P720,000 x 30%) Record dividends from DD Company. December 31, 20x4: (3) Investment in DD Company Investment income (P1,440,000 x 30%) Record share in net income of DD Company. December 31, 20x4: (4) Investment income Investment in DD Company……………………. Record amortization of allocated excess of inventory, equipment, buildings and bonds payable.

216,000 216,000

432,000

432,000

46,800 46,800

Thus, the investment balance and investment income in the books of TT Company is as follows: Investment in Joint Venture (DD Company) Cost, 1/1/x4Income 216,000 Dividends – Son (720,000x Investment 2,016,000 80%) Amortization NI of Son NI of Anton 46,800 Amortization 46,800 (1,440,000 x 30%) 432,000 (P1,440,000 x 30%) 432,000 385,200 Balance, 12/31/x4 Balance, 12/31/x4 2,185,200 To check the balance of Investment in Joint Venture (DD Company): DD Company’s Stockholders’ Equity, 12/31/20x4: P3,600,00 Common stock 0 Retained earnings P Retained earnings,1/1/20x4 1,080,000 Net income – 20x4 1,440,000 1,800,00 Dividends – 20x4 ( 720,000) 0 Book value of stockholders’ equity of DD P5,400,00 Company,12/31/20x4 0 Multiplied by: Interest in Joint Venture 30%

P1,620,00 0

Book value of Interest in Joint Venture Add: Unamortized allocated excess – 30% thereof P252,000 – P46,800, amortization) Goodwill Investment in Joint Venture (DD Company) – equity method Multiple Choice Problems 1. a Books of X Inv. in JO be: 6,500 2,500

4,000

6,500

X, capital

205,200 360,00 0 P2,185,20 0

Journal entry for settlement should Z, capital………………………..

2,500

X, capital……………………

2,500

Y, capital……………………

4,000 Books of Y Inv. in JO 2,500 4,000

6,500

Books of Z Inv. in JO 2,500 4,000

Y. capital 4,000

Z, capital 6,500

6,500 2.

Total credits - Investment in Joint Operations…………………………………P 25,810 Total debits - Investment in Joint Operations…………………………………. 19,750 Net income or total gain (credit balance)…………………………………….P 6,060

3. d Jose, capital 8,500 investment 1,212 share in net income (P6,060 x 2/10) 9,712 4. a – The 20,000 shares should be valued at market value, thus, P800,000 (20,000 shares x P40 per share) 5. b 20,000 shares at P40/share

Jose, capital P 198,000 (4,500 x P44) – Sales

P800,000 Expenses 3,000

125,000 (5,000 x P25) 13,600* (13,600 x P1) - Cash dividend 4,700 P807,700 P

Joint operation loss 37,100

168,000 (6,000 x P28) - Sales 266,000 (7,600 x P35) P 770,600

* 9/30 Shares issued (6,000 + 10,000 + 4,000) 10/20 Sold 11/ 1 Stock dividend (20,000 – 4,500) x 20% 11/15 Sold Balance of shares outstanding before cash dividend

20,000 (4,500) 3,100 (5,000) 13,600

Therefore, Roxas share would be P11,130 (P37,100 x 6,000/20,000 shares) 6. c

Investment in Joint Operations P400,000 Investment (10,000 shares x P40)

Share in net loss P37,100 x (10,000/20,000) P18,550

P381,450 7. b

Unrealized loss due to decline in the value of shares at the time of investment (P62 – P40) x 4,000 shares Share in joint operation (P37,100 x 4/20) Reduction of loss by cash dividend (P13,600 x 4/20)

P68,000 __7,420 P98,140

8. a before net income or loss

Investment in Joint Operations 15,000 25,000 ending inventory 10,000 net income

9. a (A- P10,000 x 50% = P5,000; B – P10,000 x 30% = P3,000; C – P10,000 x 20%) 10. a Purchases Contr/Invest Profit(50%) Expenses

to Alas

Joint Operations 20,000 77,000 Sales (?) 20,000

Anson, Capital Unsold merchandise 600 20,000 18,600

800 1,800 42,600

600 77,000 34,400 (P16,000+ P18,400) 2,800 (P600 + P2,200)

38,600 38,000

Unsold merchandise 37,200 Net profit 11. c – refer to No. 10 computation. 12. a Investment in Joint Operations

Purchases 10,000

7,200 sales

Freight-in 240

5,120 unsold

Freight-out 260

10,000 Contribution/Invest

910 Share in NI

(P10,000 + P240) x

1/2

10,

500

Santo, capital

12,320

10,910

1,820

13. a – refer to No. 12 for computation 14. c

Investment in Joint Operations 3,500 Sales

before sale 6,500 Net loss 3,000

N, capital

100

1,

14,500

13,400

Distribution of Loss:

O, capital

100

1,

6,500

5,400

M

Salary

15.

P

Balance, equally

N

300

P

O

-

P

Total

-

P

300

(1,100)

(1,100)

(1,100)

(3,300)

P ( 900)

P(1,100)

P(1,100)

P(3,000)

refer to No. 14 for computation 16. a Investment in Joint Operations 48,700 Sales

Purchases 45,000

16,800

18,000 Interest expense 80

40 Dividend 100

50 6

65,640

3,130 2,510 Net income 2,510

McKee, capital

00

48,7

45,000

Nelson, capital

800

16,

80 40

50 100

1,225 share in NI

5

1,225 share in NI

2,40

17. a – refer to No 16 for computation Nelson, capital McKee

18. b

18,000

2,405

2,405

2,405

a–

Investment in Joint Operations 800 sales

Purchases 950 Expenses 150

600 1,400 1,100 300 Net income

Bar, capital

Car, capital

950 800

150 600

270

30

1,220

180

800

600

420 due to

420

Due

from

The entry for the settlement would be as follows (Car will pay Bar P420): Bar, capital 420 Car, capital 420 Distribution of net income Bar

Car

Total

Commission on net purchases: 20% x P950

P190

P190

200

200 150

Commission on sales: 25% x P800 25% x P600

Balance, equally

P150

(120)

(120)

(240)

P270

P 30

P300)

19. b – refer to No. 18 for computations. 20. c Investment in Joint Operations

Tan, capital

15,000 before P/L

10,500 unsold merchandise

Salary 12,000

–

Reyes

27,000

unsold 10,500

25,500 net income

merch.

10,

4,500 share in NI (1/3 x P13,500)

31,500

500

13,500

21,000

21. b Revenues Total cash receipts (P78,920 + P65,245) Less: Cash investments (P30,000 + P20,000) Cash sales Add: Proceeds from sale of remaining assets Total Revenue Less: Expenses (P62,275 + P70,695) Net income

P144,345 50,000 P 94,345 60,000 P154,345 132,970 P 21,375

22. c Benin, capital

Receipts 78,920

920

30,000 Contribution

78,

Sucat, capital

Receipts 65,425

20,000 Contribution

62,275 Disbursement

70,695 Disbursement

12,825 Share in NI (3/5)

8,550 Share in NI (2/5)

105,100

26,180

425

65,

99,245

33,820

23. d N’s books: it shows P5,000 receivable from P, and P3,000 payable to O; thus, N should receive net cash of P2,000: O, capital 3,000 Cash 2,000 P, capital 5,000 O’s books: it shows P5,000 receivable from P, and P2,000 payable to N; thus, O should receive net cash of P3,000: N, capital 2,000 Cash 3,000 P, capital 5,000 P’s books: it shows P2,000 payable to N and P3,000 payable to O; thus, in final settlement, P should pay a total of P5,000; P2,000 and P3,000 to N and O, respectively: N, capital 2,000 O, capital 3,000 Cash 5,000 24.

The Investment in Basket Co. as of December 31 is as follows: Acquisition cost, January 1, 2013 Add (deduct): Share in net income (P90,000 x 40%] 36,000 Share in dividends (P30,000 x 40%) Amortization of allocated excess Investment balance on December 31

56,000 84,000

P 500,000

( 12,000) ( 16,400) P 507,600

Cost of investment P 500,000 Less: Book value of interest acquired [40% x (P1,400,000 – P500,000)] 360,000 Allocated excess P 140,000 Less: Over/undervaluation of assets and liabilities: Increase in building (P140,000 x 40%) Increase in trademark (P210,000 x 40) Amortization of allocated excess: Building: P56,000 / 7 years Trademark: P84,000 / 10 years

P

8,000

8,400

25. b The joint arrangement is a joint venture because it needs unanimous consent to all parties involved. The parties recognize their rights to the net assets of Harrison Company as investments and account for them using the equity method. The Investment in Basket Co. as of December 31 is as follows: Acquisition cost, January 1, 2013 Add (deduct):

P 500,000

Share in net income (P90,000 x 40%] 36,000

Share in dividends (P30,000 x 40%) Amortization of allocated excess Investment balance on December 31

( 12,000) ( 16,400) P 507,600

Cost of investment P 500,000 Less: Book value of interest acquired [40% x (P1,400,000 – P500,000)] 360,000 Allocated excess P 140,000 Less: Over/undervaluation of assets and liabilities: Increase in building (P140,000 x 40%) 56,000

Increase in trademark (P210,000 x 40)

84,000

8,400

Amortization of allocated excess: Building: P56,000 / 7 years Trademark: P84,000 / 10 years Total

26. b – refer to No. 25 for further discussion. The Income from Investment in Basket Co. on December 31 is as follows: Share in net income (P90,000 x 40%] 36,000 Amortization of allocated excess Income from Investment on December 31

P

8,000

P 16,400

P ( 16,400) P 19,600

27. d The joint arrangement is a joint venture because it needs unanimous consent to all parties involved. The parties recognize their rights to the net assets of Harrison Company as investments and account for them using the equity method. The Investment in Goldman Co. as of December 31, 2015 is as follows: Acquisition cost, January 1, 2013 Add (deduct): Share in net income [(P140,000 x 3 years) x 40%] Share in dividends [(P50,000 x 3 years) x 40%] (60,000) Amortization of allocated excess Investment balance on December 31

0

P 600,000 168,000 ( 0) P 708,000

Cost of investment Less: Book value of interest acquired (40% x P1,200,000) Allocated excessP 120,000 Less: Over/undervaluation of assets and liabilities

P 600,000 480,000

Goodwill

P 120,000

There is no indication as to impairment of goodwill. 28. d To determine whether a contractual arrangement gives parties control of an arrangement collectively, it is necessary first to identify the relevant activities of that arrangement. That is, what are the activities that significantly affect the returns of the arrangement?

When identifying the relevant activities, consideration should be given to the purpose and design of the arrangement. In particular, consideration should be given to the risks to which the joint arrangement was designed to be exposed, the risks the joint arrangement was designed to pass on to the parties involved with the joint arrangement, and whether the parties are exposed to some or all of those risks. In many cases, directing the strategic operating and financial policies of the arrangement will be the activity that most significantly affects returns. Often, the arrangement requires the parties to agree on both of these policies. However, in some cases, unanimous consent may be required to direct the operating policies, but not the financial policies (or vice versa). In such cases, since the activities are directed by different parties, the parties would need to assess which of those two activities (operating or financing) most significantly affects returns, and whether there is joint control over that activity. This would be the case whenever there is more than one activity that significantly affects returns of the arrangements, and those activities are directed by different parties. Based on the ownership structure, even though Wallace can block any decision, Wallace does not control the arrangement, because Wallace needs Zimmerman to agree — therefore joint control between Wallace and Zimmerman (since their votes and only their votes, together meet the requirement). Because they are the only combination of parties that collectively control the arrangement, it is clear that Wallace and Zimmerman must unanimously agree. The appropriate method for the joint venture is the equity method. The Income from Investment in Gold Co. on December 31, 2015 is as follows: Share in net income (P140,000 x 40%) P 56,000 Amortization of allocated excess ( 0) Income from Investment on December 31, 2015 P 56,000 29. d No joint control — multiple combinations of parties could be used to reach agreement and collectively control the arrangement (i.e., Wallace and Zimmerman or Wallace and American could vote together to meet the requirement). Since there are multiple combinations, and the contractual agreement does not specify which parties must agree, there is no unanimous consent. It should be noted that since there is no joint control as indicated per problem and the presence of 50% ownership holding is presumed to give significant influence of Wallace over Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman Company is considered as an associate instead of a joint venture. The appropriate method for Investment in Associates is the equity method. The Income from Investment in Gold Co. on December 31, 2015 is as follows: Share in net income (P140,000 x 40%) P 56,000 Amortization of allocated excess ( 0) Income from Investment on December 31, 2015 P 56,000 30. d No joint control – multiple combinations could be used to reach agreement.

It should be noted that since there is no joint control as indicated per problem and the presence of 35% ownership holding is presumed to give significant influence of Wallace over Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman Company is considered as an associate instead of a joint venture. The appropriate method for Investment in Associates is the equity method. The Income from Investment in Gold Co. on December 31, 2015 is as follows: Share in net income (P140,000 x 40%) P 56,000 Amortization of allocated excess ( 0) Income from Investment on December 31, 2015 P 56,000 31. a – downstream transaction (refer also to consolidation for corollary analysis) Gross Profit Markup: P36,000/P90,000 = 40% Inventory Remaining at Year-End P20,000 x: Markup 40% Unrealized profit in ending inventory P 8,000 x: Ownership 30% Intercompany Unrealized profit in ending inventory P 2,400 Multiple Choice Problems – SME for Joint Ventures 1. a 2. a 3. a 4. a 5. c 6. a 7. a 8. a 9. c 10. a 11. a 12. c 13. a 14. a 15. b 16. c Cost of investment in entity Z: Purchase price…………………………………………………………………….. P 28,000 Add: Transaction costs (1% x P28,000)……………………………………… 280 Costs…………………………………………………………………………………. P 28,280 Less: Fair value on December 31, 20x4……………………................................P 15,000 Less: Costs to sell (5% x P15,000)…………………………………………….. 750 14,250 Impairment loss……………………………………………………………………….. P 14,030

17. d No entry required only the decrease or increase in fair value is recognized to profit and loss.

18. a Cost of investment in entity Z: Purchase price…………………………………………………………………….. 28,000

P

5,000

Add: Transaction costs (1% x P28,000)……………………………………… 280 Initial costs………………………………………………………………………….. P 28,280 Less: SME A’s share of entity Z’s loss for the year (25% x P20,000)……......

Costs of investment, December 31, 20x4……………………………………. P23,280 Less: Fair value on December 31, 20x4…………………….................................P 15,000 Less: Costs to sell (5% x P15,000)…………………………………………….. 750 14,250 Impairment loss……………………………………………………………………….. P 9,030

19. b Cost of investment in entity Z………………. ……………………………………………… ..P 28,000 Less: Fair value on December 31, 20x4…………………..................................................... 15,000 Decrease in fair value on December 31, 20x4……………………………………………P 13,000

20. a

Entity X:

Cost of investment in entity X………………. …………………………………………… P 10,000 Less: Fair value on December 31, 20x4…………………............................................... 13,000 Increase in fair value on December 31, 20x4………………………………………… P 13,000

Entity Y: Cost of investment in entity Y………………. …………………………………………… P 15,000 Less: Fair value on December 31, 20x4…………………............................................... 29,000 Increase in fair value on December 31, 20x4………………………………………… P 14,000

21. d – refer to paragraphs PFRSs for SMEs paragraphs 15.10 and 15.11 20x4: P101,000 because recoverable amount – fair value less costs to sell of P98,000 is less than the cost of P101,000. 20x5: P101,000 because it is less than recoverable amount. 20x6: P86,000 because recoverable amount of P86,000 is less than cost of P101,000.

22. e – PFRSs for SMEs paragraphs 15.12, 15.14 and 15.15