#5 NCA held for Sale - More PDF

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Page 1 of 38/14/20COVID – 19 PROJECT FOR ACCOUNTANTSFINANCIAL ACCOUNTING AND REPORTINGHELD FOR SALE ASSETSI. IFRS 5 Applies to the Classification and Presentation Requirements to all non-current assets and disposal groups that meet the definition as Held for SaleII. I n Order to be Held for Sale All...

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Page 1 of 3 COVID – 19 PROJECT FOR ACCOUNTANTS FINANCIAL ACCOUNTING AND REPORTING HELD FOR SALE ASSETS I. IFRS 5 Applies to the Classification and Presentation Requirements to all non-current assets and disposal groups that meet the definition as Held for Sale II. In Order to be Held for Sale All of the Following Must be Present: a) b) c) d)

Carrying value of the asset is to be recovered principally through a sale transaction. The asset is available for immediate sale, and The sale is highly probable. Noncurrent assets to be abandoned through continued use do not qualify as held for sale.

III. HIGHLY PROBABLE MEANS: a) The appropriate level of management must be committed to a plan to sell the asset (or disposal group) b) An active program to locate a buyer and complete the plan must have been initiated c) The asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. d) The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification e) 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the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn IV. NONCURRENT ASSETS EXCLUSIVELY ACQUIRED WITH A VIEW TO ITS SUBSEQUENT DISPOSAL a) Classify the non-current asset (or disposal group) as held for sale at the acquisition date only if the one-year requirement in is met, and b) It is highly probable that the other requisites will be met within a short period following the acquisition (3 months) V. NCA HELD FOR SALE REQUIREMENTS MET AFTER THE END OF THE REPORTING PERIOD a) An entity shall not classify a non-current asset (or disposal group) as held for sale in those financial statements when issued. b) When those criteria are met after the reporting period but before the authorization of the financial statements for issue, the entity shall make appropriate disclosures VI. MEASUREMENT NCA HELD FOR SALE OR DISPOSAL GROUP • • • • •

The carrying amount of the asset is updated prior to the classification as Held for Sale by applying the current accounting policy used. (e.g. cost or revaluation model) Lower of carrying amount and fair value less costs to disposal. When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Gains for any subsequent increase in fair value less costs to sell of an asset is recognized, but not in excess of the cumulative impairment loss that has been recognized. An entity shall not depreciate (or amortize) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale.

VII. CHANGE IN CLASSIFICATION FROM HELD FOR SALE TO PPE The Asset is measured at the lower of: a) Its depreciated carrying amount in a manner that the asset was never classified as held for sale, and b) Its recoverable amount at the date of the subsequent decision not to sell Any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale is recognized in profit or loss in the period of the latest reclassification.

8/14/20

#5

Page 2 of 3 MULTIPLE CHOICE 1. Purple Company accounted for noncurrent assets using the cost model. On December 31, 2020, the entity classified equipment as held for sale. At that date, the equipment had a cost of P7,000,000 and was acquired on January 1, 2018 with a 10-year useful life and no residual value. Depreciation has not yet been recorded in 2020. The fair value was estimated at P3,700,000 and the cost of disposal at P200,000. Value in use was estimated at P4,000,000. The fair value less cost of disposal on December 31, 2021 increased to P3,800,000 and the asset remained unsold. On January 31, 2022, the equipment was sold for net proceeds of P3,000,000. 1. What amount should be included as an impairment loss on the date of reclassification? a. 1,500,000 b. 2,100,000 c. 1,400,000 d. 900,000 2. What amount of gain from remeasurement shall be recognized on December 31, 2020? a. 300,000 b. 400,000 c. 800,000 d. 0 3. What is the loss on disposal recognized in 2022? a. 800,000 b. 400,000 c. 500,000 d. 0 2. Lavender Company accounted for noncurrent assets using the revaluation model. On October 1, 2020, the entity classified a land as held for sale. At that date, the carrying amount of the land was P6,000,000 and the balance in the revaluation surplus was P2,000,000. At same date, the fair value of the land was estimated at P7,500,000 and the cost of disposal at P200,000. The land was sold on January 31, 2021 for P8,000,000. 1. What amount should be included as an impairment loss on the date of reclassification? a. 200,000 b. 500,000 c. 0 d. 600,000 2. What is the carrying amount of the NCA on December 31, 2020? a. 7,500,000 b. 6,000,000 c. 8,000,000 d. 7,300,000 3. What amount should be reported as gain on disposal of land in 2021? a. 1,000,000 b. 2,000,000 c. 500,000 d. 700,000 4. How much revaluation surplus was transferred to retained earnings from the sale of the land? c. 2,000,000 d. 1,800,000 c. 3,500,000 d. 0...