(Chp44) Pfrs 5- Discontinued Operation

October 9, 2017 | Author: Sean Gregory Parungao Campo | Category: Fair Value, Depreciation, Revenue, Expense, Financial Economics
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PFRS 5 – DISCONTINUED OPERATION AND ASSET HELD FOR SALE 1. 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 a. Disposal group c. Noncurrent asset b. Discontinued operation d. Cash generating unit 2. 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 3. Which of the following is not one of the criteria for the sale of a noncurrent asset held for sale to be highly probable? a. Management must be committed to a plan to sell the asset b. An active program to locate a buyer and complete the plan must have been initiated c. The asset must be actively marketed for sale at a reasonable price in relation to the current fair value d. The sale should be expected to qualify for recognition as a completed sale within two years from the date of classification of the asset as “held for sale” 4. An entity shall classify a noncurrent asset or disposal group as “held for sale” when a. The carrying amount of the asset or disposal group is recovered through a sale b. The carrying amount of the asset or disposal group is recovered through continuing use c. The noncurrent asset or disposal group is to be abandoned d. The noncurrent asset or disposal group is idle or retired from active use 5. A noncurrent asset that is to be abandoned should not be classified as held for sale because a. The carrying amount is recovered principally through continuing use b. It is difficult to value c. It is unlikely that the noncurrent asset will be sold within 12 months d. It is unlikely that there will be an active market for the noncurrent asset 6. An entity shall measure a noncurrent asset or disposal group classified as held for sale at a. Carrying amount b. Fair value less cost of disposal c. Lower of carrying amount and fair value less cost of disposal d. Higher of carrying amount and fair value less cost of disposal 7. Which statement is incorrect concerning noncurrent asset or disposal group held for sale? a. An entity shall present a noncurrent asset held for sale and the assets of disposal group classified as held for sale under current assets separately from other assets b. The liabilities of a disposal group classified as held for sale shall be presented under current liabilities separately from other liabilities c. The assets and liabilities of a disposal group classified as held for sale shall not be offset as a single amount d. An entity shall depreciate a noncurrent asset classified as held for sale or while it is part of a disposal group classified as held for sale 8. An entity shall recognize any subsequent increase in fair value less cost of disposal of a noncurrent asset 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 profit or loss d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss previously recognized

9. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the current year-end. The entity decided at the end of the following year not to sell the asset but to continue to use it. The asset should be measured at the end of the following year at a. The 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 recoverable amount d. The recoverable amount 10. 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 exclusively with a view to resale d. All of these 11. Which of the following is a requirement for a component of an entity to be classified as discontinued operation? a. Its activities must permanently cease prior to the financial statements being authorized for issue b. It must comprise a separately reportable segment c. Its assets must have been classified as held for sale in previous financial statements d. It must have been a cash generating unit or group of cash generating units while being held for use 12. The results of discontinued operation shall be presented a. As a single amount below the income from continuing operations b. With details of revenue and expenses side by side with continuing operations c. As a single amount in the statement of retained earnings d. In the accompanying notes to financial statements 13. When an entity discontinued an operation and disposed of the discontinued operation, the transaction should be reported as a gain or loss on disposal reported as a. A prior period adjustment b. An other income and expense item c. An amount after continuing operations and before net income d. A bulk sale of plant assets included in income from continuing operations 14. Which of the following statements in relation to a discontinued operation is true? I. When the discontinued criteria are met after the end of the reporting period, the operation shall retrospectively be separately presented as a discontinued operation II. The net cash flows attributable to the operating, investing and financing activities of a discontinued operation shall be separately presented a. I only c. Both I and II b. II only d. Neither I nor II 15. Arvin company is a diversified entity with nationwide interests in commercial real estate development, banking, mining and food distribution. The food distribution division was deemed to be inconsistent with the long-term direction of the entity. On October 1, 2014, the board of directors voted to approve the disposal of this division. The sale is expected to occur in August 2015. The food distribution had the following revenue and expenses in 2014: January 1 to September 30, revenue of P35,000,000 and expenses of P25,000,000; October 1 to December 31, revenue of P10,000,000 and expenses of P12,000,000. The carrying amount of the division’s assets on December 31, 2014 was P50,000,000 and the recoverable amount was estimated to be P55,000,000. The sale contract required the entity to terminate certain employees incurring an expected termination cost of P1,000,000 to be paid by December 15, 2015. Income tax rate is 30%. What amount should be reported as income from discontinued operations for 2014? a. 5,600,000 c. 4,900,000 b. 9,100,000 d. 8,400,000

16. On November 1, 2014, Albert company committed to a plan to dispose of a major subsidiary. The disposal met the requirements for classification as discontinued operation. The carrying amount of the subsidiary was P8,000,000 and management estimated the fair value less cost of disposal at P6,500,000. The subsidiary had an operating loss of P2,000,000. What amount should be presented as pretax loss from discontinued operation for the current year? a. 3,500,000 c. 2,000,000 b. 1,500,000 d. 0 17. Warmae company accounted for noncurrent assets using the cost model. On July 1, 2014, the entity classified an equipment as held for sale. At that date, carrying amount was P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at P100,000. On December 31, 2014, the equipment was sold for net proceeds of P2,500,000. What amount should be included as an impairment loss for 2014? a. 1,600,000 c. 1,500,000 b. 2,500,000 d. 900,000 18. Vincent company accounted for noncurrent assets using the revaluation model. On October 1, 2014, the entity classified a land as held for sale. At that time, the carrying amount of the land was P5,000,000 and the balance in the revaluation surplus was P1,500,000. At same date, the fair value of the land was estimated at P5,500,000 and the cost of disposal at P100,000. The land was sold on January 31, 2015 for P6,000,000. What amount should be reported as gain on disposal of land in 2015? a. 1,000,000 c. 500,000 b. 2,600,000 d. 600,000 19. Russel company, a parent entity, approved on December 1, 2014 a plan to sell a subsidiary. The sale is expected to be completed on March 31, 2015. The year-end is December 31, 2014 and the financial statements were approved on March 1, 2015. The subsidiary had assets with carrying amount of P15,000,000 including goodwill of P1,500,000 on December 31, 2014. The subsidiary made an operating loss of P3,000,000 from January 1 to March 1, 2015 and is expected to make a further loss of P2,000,000 up to the date of sale. At the date of approval of the financial statements, the entity was in negotiation for the sale of the subsidiary but no contract had been signed. The entity expected to sell the subsidiary for P9,000,000 and to incur cost of disposal of P500,000. The value in use of the subsidiary was estimated to be P10,000,000. In the December 31, 2014 statement of financial position, what is the measurement of the subsidiary classified as a “disposal group held for sale”? a. 15,000,000 c. 9,000,000 b. 10,000,000 d. 8,500,000 20. Regina company purchased an equipment for P5,000,000 on January 1, 2014. The equipment had a useful life of 5 years with no residual value. On December 31, 2014, the entity classified the asset as held for sale. On such date, the fair value less cost of disposal of the equipment was P3,500,000. On December 31, 2015, the entity believed that the criteria for classification as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to continue to use it. On December 31, 2015, the fair value less cost of disposal of the equipment was P2,700,000. A. What amount of impairment loss should be recognized in 2014? a. 1,500,000 c. 500,000 b. 1,000,000 d. 0 B. What amount should be included in profit or loss in 2015 as a result of the reclassification of the equipment to property, plant and equipment? a. 800,000 gain c. 300,000 gain b. 800,000 loss d. 300,000 loss C. What is the depreciation for 2016? a. 1,000,000 c. 900,000 b. 875,000 d. 675,000

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