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Page 1 of 3REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICEREVALUATION AND IMPAIRMENT Lian Company acquired a building on January 1, 2001 at a cost of P50,000,000. The building has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2005 and the ...

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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE REVALUATION AND IMPAIRMENT 1. Lian Company acquired a building on January 1, 2001 at a cost of P50,000,000. The building has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2005 and the revaluation revealed replacement cost of P80,000,000, residual value of P2,000,000 and revised life of 12 years. What is the revaluation surplus on December 31, 2005? a. 30,000,000 b. 26,250,000 c. 16,800,000 d. 14,700,000 2. On January 1, 2005, the historical balances of the land and building of Lipa Company are: Land Building

Cost 50,000,000 300,000,000

Accumulated depreciation 90,000,000

The land and building were appraised on same date and the revaluation revealed the following: Sound value 80,000,000 350,000,000

Land Building

There were no additions or disposals during 2005. Depreciation is computed on the straight line. The estimated life of the building is 20 years. The depreciation of the building for the year ended December 31, 2005 should be a. 25,000,000 b. 10,000,000 c. 15,000,000 d. 17,500,000

3. Capiz Company has the following information on January 1, 2005 relating to its land and building. Land Building Accumulated depreciation

20,000,000 450,000,000 75,000,000

There were no additions or disposals during 2005. Depreciation is computed using straight line over 15 years for building. On June 30, 2005, the land and building were revalued as follows: Land Building

Replacement cost 35,000,000 600,000,000

1. What is the depreciation of the building for 2005? a. 30,000,000 b. 35,000,000 c. 40,000,000 d. 32,000,000

Sound value 35,000,000 480,000,000

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2. What is the revaluation surplus on June 30, 2005? a. 135,000,000 b. 125,000,000 c. 120,000,000 d. 160,000,000 3. What is the revaluation surplus on December 31, 2005? a. 125,000,000 b. 130,000,000 c. 123,750,000 d. 115,000,000 4. During December 2005, Talisay Company determined that there had been a significant decrease in market value of its equipment. At December 31, 2005, Talisay compiled the following information concerning the equipment: Original cost Accumulated depreciation Expected undiscounted net future cash inflows from the continued use and eventual disposal Expected discounted net future cash inflows from the continued use and eventual disposal Fair value less cost to sell

20,000,000 12,000,000 7,000,000 5,000,000 6,500,000

What is the impairment loss that should be reported in the 2005 income statement? a. 1,000,000 b. 2,000,000 c. 1,500,000 d. 0

5. Tanauan Company has one division that performs machining operations on parts that are sold to contractors. A group of machines have an aggregate cost and accumulated depreciation on December 31, 2005 as follows: Machinery Accumulated depreciation

90,000,000 30,000,000

The machines have an average remaining life of 4 years and it has been determined that this group of machinery constitutes a cash generating unit. The fair value less cost to sell of this group of machines in an active market is determined to be P45,000,000. Based on supportable and reasonable assumptions, the financial forecast for this group of machines reveals the following cash inflows and cash outflows for the next four years: 2006 2007 2008 2009

Cash inflows 30,000,000 32,000,000 26,000,000 16,000,000

Cash outflows 12,000,000 17,000,000 14,000,000 6,000,000

It is believed that a discount rate of 8% is reflective of time value of money. The table of present value shows that the present value of 1 at 8% is as follows: Period Present value of 1 1 .93 2 .86 3 .79 4 .74...