CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
IMPAIRMENT
1. At year-end, an entity had an equipment with cost of P9,000,000 and accumulated depreciation of
P3,000,000. Due to obsolescence and physical damage, the equipment was found to be impaired.
On same date, the entity determined that the equipment had a fair value less cost of disposal of
P4,500,000, discounted net cash inflows of P4,000,000 and undiscounted net cash inflows of
P5,000,000. What amount should be reported as impairment loss for the current year?
a. 1,500,000
b. 2,000,000
c. 1,000,000
d. 0
2. An entity had purchased equipment for P5,600,000 on January 1, 2018. The equipment had an
8-year life and residual value of P800,000. The entity depreciated the equipment using the straight
line method. On December 31, 2021, the entity questioned the recoverability of the carrying
amount of this equipment. On same date, the discounted expected net future cash inflows related to
the continued use and eventual equipment amounted to P3,500,000. The fair value of the
equipment less cost of disposal was P3,000,000. After any loss on impairment had been
recognized, what is the carrying amount of the equipment?
a. 3,500,000
b. 3,200,000
c. 3,000,000
d. 2,400,000
3. On January 1, 2021, an entity purchased equipment with cost of P10,000,000, useful life of 10
years and no residual value. The entity used straight line depreciation. On December 31, 2021 and
December 31, 2022, the entity determined that impairment indicators are present. There is no
change in useful life or residual value. On December 31, 2021, the fair value less cost of disposal
was P8,100,000 and the value in use P8,550,000. On December 31, 2022, the fair value less cost of
disposal was P7,900,000 and the value in use P7,700,000.
1. What is the impairment loss for 2021?
a. 900,000
b. 450,000
c. 600,000
d. 0
2. What is the gain on reversal of impairment for 2022?
a. 300,000
b. 100,000
c. 400,000
d. 0
4. An entity reported the following calculation relating to an impairment loss of P5,000,000 suffered
on December 31, 2021:
Goodwill Other assets
Carrying amount 3,000,000 9,000,000
Impairment loss (3,000,000) (2,000,000)
There has been a favorable change in the estimate of the recoverable amount of the assets. The
recoverable amount is now P8,000,000 on December 31, 2022. The carrying amount of the assets
would have been P7,200,000 on December 31, 2022 if there was no impairment loss recognized on
December 31, 2021. Other assets are depreciated at 20% of reducing balance.
1. What amount of gain on reversal of impairment should be recognized in 2022?
a. 1,000,000
b. 2,400,000
c. 1,600,000
d. 0
2. What is the goodwill after recording reversal of impairment?
a. 1,600,000
b. 2,400,000
c. 1,440,000
d. 0 6908
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5. An entity reported on impairment loss of P2,000,000 in 2020. This loss was related to an item of
property, plant and equipment which was acquired on January 1, 2019 with cost of P10,000,000,
useful life of 10 years and no residual value. The straight lie method is used in recording
depreciation. On December 31, 2020, the entity reported this asset at P6,000,000 which is the fair
value less cost of disposal on such date. On December 31, 2021, the entity determined that the fair
value less cost of disposal of the impaired asset had increased to P7,500,000. What amount of gain
on reversal of impairment should be reported for 2021?
a. 2,250,000
b. 1,750,000
c. 1,500,000
d. 0
6. An entity believed that the assets of the cash generating unit (CGU) are impaired. The assets and
liabilities of the cash generating unit at carrying amount at year-end are:
Cash 5,000,000
Accounts receivable 6,000,000
Allowance for doubtful accounts 1,000,000
Inventory 7,000,000
Property, plant and equipment 22,000,000
Accumulated depreciation 4,000,000
Goodwill 3,000,000
Accounts payable 2,000,000
Loans payable 1,000,000
The entity determined that the value in use of the cash generating unit is P30,000,000. The
accounts receivable are considered collectible, except those considered doubtful. The fair value less
cost of disposal of the inventory is P6,000,000.
1. What is the impairment loss on goodwill?
a. 3,000,000
b. 1,500,000
c. 2,000,000
d. 0
2. What is the impairment loss on inventory?
a. 1,400,000
b. 1,000,000
c. 2,500,000
d. 0
3. What is the impairment loss on property, plant and equipment?
a. 4,000,000
b. 5,000,000
c. 3,600,000
d. 3,200,000
7. An entity is testing two reporting units for impairment of goodwill.
Telecommunication Networking
Segment carrying amount including goodwill 2,000,000 3,000,000
Carrying amount of goodwill 500,000 500,000
Total fair value of segment including goodwill 2,900,000 2,800,000
Total fair value of segment other than goodwill 2,100,000 2,500,000
1. What is the adjusted amount of goodwill for telecommunication?
a. 400,000
b. 800,000
c. 500,000
d. 0
2. What is the adjusted amount of goodwill for networking?
a. 500,000
b. 200,000
c. 300,000
d. 0
END 6908