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. On January 1, 2022, an entity purchased equipment with cost of P10,000,000, useful life of 5 years and
no residual value. The entity used straight line depreciation. On December 31, 2022 and December 31,
2023, the entity determined that impairment indicators are present. There is no change in useful life or
residual value.
December 31, 2022 December 31, 2023
Fair value loss cost of disposal 7,200,000 5,900,000
Value in use 6,500,000 5,600,000
1. What is the impairment loss for 2022?
a. 800,000
b. 750,000
c. 600,000
d. 0
2. What is the gain on reversal of impairment for 2023?
a. 200,000
b. 500,000
c. 600,000
d. 0
3. An entity reported the following calculation relating to an impairment loss of P5,000,000 suffered on
December 31, 2022:
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, 2023. The carrying amount of the assets would have been
P7,200,000 on December 31, 2023 if there was no impairment loss recognized on December 31, 2022.
Other assets are depreciated at 20% of reducing balance.
1. What amount of gain on reversal of impairment should be recognized in 2023?
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. 1,400,000
c. 1,440,000
d. 0

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4. An entity reported on impairment loss of P2,000,000 in 2021. This loss was related to an item of property,
plant and equipment which was acquired on January 1, 2020 with cost of P10,000,000, useful life of 10
years and no residual value. The straight line method is used in recording depreciation. On December 31,
2021, the entity reported this asset at P6,000,000 which is the fair value less cost of disposal on such date.
On December 31, 2022, the entity determined that the fair value less cost of disposal of the impaired asset
had increased to P7,500,000.
1. What is the carrying amount of the asset on December 31, 2022 after impairment?
a. 6,000,000
b. 5,250,000
c. 5,400,000
d. 7,000,000
2. What amount of gain on reversal of impairment should be reported for 2022?
a. 2,250,000
b. 1,750,000
c. 1,500,000
d. 0
5. 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

END

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