REVALUATION AND IMAPRIMENT

1. Six situations are given below concerning a plant asset currently used in operations:

FV less
Carrying Value in Cost to
Case amount Use Sell
1 P120,000 P125,000 P135,000
2 235,000 195,000 235,000
3 150,000 180,000 200,000
4 180,000 120,000 175,000
5 210,000 205,000 195,000
6 225,000 195,000 255,000

Which among the cases, if any, require impairment loss recognition?

a. 1, 2, 3, and 6 only

w
b. 2, 4, and 5 only
c. 4, 5, and 6 only

ie
d. 4 and 5 only

2. On January 1, 2018, a company purchased a building and a piece equipment for a total

ev
cost of P39,500,000. The fair values of the building and the equipment on the acquisition
date were P33,750,000 and P11,250,000, respectively. The company paid an appraiser
fee of P500,000.
R
Based on the company’s policy, the building was depreciated using a 50-year useful life
while the equipment for a10-year useful life. The assets will be accounted for using the
revaluation model.
PA

The following depreciated replacement costs were available for both the building and the
equipment:

Date Building Equipment

December 31, 2019 P29,760,000 P8,800,000
C

December 31, 2021 27,140,000 5,850,000

December 31, 2023 26,840,000 4,500,000
EO

What is the depreciation expense in 2020?

a. P1,600,000
b. P1,610,000
c. P1,700,000
d. P1,720,000
R

3. What is the reversal of the revaluation surplus in 2021?

a. P2,130,000
b. P1,760,000
c. P1,520,000
d. P610,000

4. What is the impairment loss in 2021?

a. P3,440,000
b. P2,130,000
c. P1,520,000
d. P610,000

5. What is the recovery of impairment loss in 2023?

a. P1,565,000
 b. P1,480,000
c. P940,000
d. P540,000

6. What is the annual piecemeal realization starting 2024?

a. P170,000
b. P135,000
c. P35,000
d. P0

7. A company acquired a machine for P1,600,000 on September 1, 2018. The machine was
depreciated using a 5-year useful life with P250,000 residual value, under the straight-
line method. On December 31, 2021, the company determined that the value in use and
the fair value less cost to sell of the machine were P540,000 and P675,000, respectively.
What is the impairment loss in 2021?
a. P360,000

w
b. P225,000
c. P160,000

ie
d. P25,000
e. P300,000

ev
9. A company purchased an equipment costing P10,400,000 on January 1, 2017. The
equipment was depreciated for 10 years using the straight-line method with P800,000
residual value. On January 1, 2021, the company revalued the equipment and determined
that the replacement cost of the equipment was P16,000,000 and the residual value was
R
P400,000. The revaluation showed a total revised life of 12 years. What is the balance of
the revaluation surplus on December 31, 2021?
a. P2,800,000
b. P2,880,000
PA

c. P4,900,000
d. P5,040,000

10. What is depreciation expense in 2021?

a. P1,950,000
C

b. P1,300,000
c. P1,170,000
d. P780,000
EO

11. On January 1, 2015, a company purchased a machinery for P600,000, with an estimated
economic useful life of 12 years. Straight line method of depreciation was used. On
December 31, 2018, it was determined that the fair value less cost of disposal was
P235,000 while the value in use was P240,000. On January 1, 2021, it was determined
that the recoverable amount of the asset was P250,000. How much recovery from
R

impairment should be recognized on January 1, 2021?

a. P50,000
b. P70,000
c. P120,000
d. P130,000

12. A company purchased a machinery on January 1, 2018, at a cost of P1,000,000. The

machine was being depreciated using the straight-line method over its estimated useful
life of 10 years. On December 31, 2019, the asset’s fair value was P1,200,000.
Accordingly, an entry was made on that date to recognize the revaluation. A revaluation
was made again on December 31, 2021, when the sound value of the asset was P570,000.
The company had the policy of transferring any revaluation surplus to retained earnings
as the asset is being used up. How much was the impairment loss for the year 2021?
a. P330,000
 b. P300,000
c. P70,000
d. P30,000

13. On December 31, 2021, the records of a company showed that the carrying amounts of its
cash generating unit’s goodwill and property, plant and equipment were P3,500,000 and
P14,000,000 respectively. The value in use of the cash generating unit was estimated at
P15,000,000. Determine the impairment loss that should be allocated to the items of
property, plant and equipment.
a. P2,500,000
b. P2,000,000
c. P500,000
d. P0

14. The carrying amounts of the identifiable assets of the cash generating unit were
machinery, P625,000; equipment, P1,875,000; and building, P2,500,000. The company

w
determined that the cash generating unit’s fair value less cost to sell was P4,650,000,
while the value in use was P4,750,000. Meanwhile, the fair value less cost to sell of the

ie
building was P2,475,000. What amount of impairment loss is allocated to the machinery?
a. P28,125
b. P31,250
c. P56,250
d. P62,500
ev
15. What is the carrying amount of the equipment after the impairment?
R
a. P1,687,500
b. P1,706,250
c. P1,781,250
d. P1,790,625
PA

16. It is the fair value or depreciated replacement cost of the item of property, plant and
equipment.
a. Book value
b. Revalued amount
C

c. Net realizable value

d. Replacement cost
EO

17. Impairment loss is the difference between the

a. carrying amount and recoverable amount, when the former exceeds the latter.
b. carrying amount and value in use, when the former exceeds the latter.
c. carrying amount and fair value less cost to sell, when the former exceeds the latter.
d. carrying amount and recoverable amount, when the latter exceeds the former.
R

18. IAS 36 Impairment of assets is applied in accounting for the impairment of which type of
asset?
a. Assets arising from construction contracts.
b. Financial assets measured at fair value.
c. Investment properties measured at fair value.
d. Non-current assets measured at cost.

19. A revaluation increase shall be recognized as income

a. always.
b. when the asset revalued for the first time.
c. when the asset is revalued frequently than usual.
d. when it reverses a revaluation decrease of the same asset previously recognized as
expense.
20. When an asset’s carrying amount is increased as a result of revaluation, the increase shall
be credited to
a. revaluation surplus, a component of profit or loss.
b. revaluation surplus, a component of other comprehensive income.
c. retained earnings.
d. investment income.

21. When an asset’s carrying amount is decreased as a result of revaluation, the decrease
shall be debited to
a. impairment loss if the decrease is a reversal of previous revaluation, the balance to
revaluation surplus.
b. revaluation surplus if the decrease is a reversal of previous revaluation, the balance to
impairment loss.
c. impairment loss, whether or not the decrease is a reversal of previous revaluation.
d. revaluation surplus, whether or not the decrease is a reversal of previous revaluation.

w
22. Impairment loss of a cash generating unit shall be allocated
a. first to goodwill if there is any, then to all other noncash assets pro-rata based on

ie
their fair values.
b. first to goodwill if there is any, then to all other noncash assets pro-rata based on
their carrying values.

ev
c. first to noncash assets pro-rata based on their fair values, then to goodwill.
d. first to noncash assets pro-rata based on their carrying values, then to goodwill.

23. When an impairment loss in a cash-generating unit is reversed, it is allocated pro-rata to

R
the unit’s assets, except:
a. Land.
b. building.
c. equipment.
PA

d. Goodwill.

END OF HANDOUT
C
EO
R