HOMEWORK ON NON-CURRENT ASSETS HELD FOR SALE

AND DISCONTINUED OPERATIONS

1. On May 1, 2020,TIMOTHY Company approved a plan to dispose of a business segment. It is expected that the
sale will occur on March 31, 2021. On December 31, 2020, the carrying amount of the net assets of the segment
was P3,000,000 and the net recoverable amount was P2,500,000. During 2020, the company paid employee
severance and relocation costs of P220,000 as a direct result of the discontinued operation. The revenues and
expenses of the discontinued segment during 2020were:

Revenues Expenses
January 1 to April 30 P2,480,000 P3,190,000
May 1 to December 31 1,360,000 1,850,000

How much will be reported as loss from the discontinued segment for the year 2020?

2. On October 1, 2020,TITUS Company approved a formal plan to sell a business segment. The sale will occur on
March 31, 2021. The segment had operating income of P2,100,000 from January 1 to September 30 and P595,000
for the quarter ended December 31, 2020. On December 31, 2020, the carrying amount of segment was
P3,130,000 and the recoverable amount was P3,750,000. The income tax rate is 30%.

How much will be reported as income from the discontinued segment, net of tax for the year 2020?

3. On January 1, 2020, PHILEMON Company entered into an agreement to sell the assets and product line of a
business segment. The sale was consummated on December 31, 2020 and resulted in a gain on disposition of
P1,125,000. The segment’s operations resulted in income before tax of P400,000 in 2020 and P570,500 in 2019.
The income tax rate is 30%.

In the comparative income statements for 2020 and 2019, how much should thecompany report as income from
the discontinued segment for the period ended2020 and 2019?

4. HEBREWS Company considers a restructuring plan to commit a disposal of its garment machine and its financial
implication. The carrying amount of the machine is P188,700. The machine’s value in use before the
reclassification is P180,000.The firm expects the fair value of the machine to be P184,000 while its cost to sell
is P24,000. Determine the amount of impairment loss.

5. JAMES Company had a net income after tax of P2,295,000 for the year ended December 31, 2020 after giving
effect to the following events which occurred during the year. The decision was made on January 2 to discontinue
the plastics manufacturing segment. The plastics manufacturing segment was sold on June 30. Operating loss
from January 1 to June 30 for the plastics manufacturing segment amounted to P250,000 before tax benefit.
Plastics manufacturing equipment with a book value of P1,600,000 was sold for P1,950,000. The tax rate was
30%.

For the year ended December 31, 2020, how much was the company’s after tax income from continuing
operations?

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6. PETER Manufacturing Group has a disposal group held for sale with the following details:

Goodwill P 306,000
Property, plant, and equipment 840,000
Intangible assets 480,000
Investment Property 254,700
Carrying amount of disposal group P1,880,700

The investment property is measured by using the fair value model, and its fair value is P225,000 at the date of
the disposal group being reclassified as held for sale under PFRS 5. Other assets have already been re-measured
in accordance with the applicable accounting standards before the reclassification as held for sale. The fair value
less costs to sell of the disposal group is P1,500,000.

Determine the impairment loss and evaluate the financial implication of the reclassification of the disposal
group as held for sale.

7. On January 1, 2020, JOHN Company acquired a motor vehicle with an estimated useful life of 10 years at
P1,200,000 (with no residual value and depreciated on a straight-line basis). Five days after the receipt of the
vehicle, the company decided to sell it. The planned disposal fulfilled the criteria under PFRS 5 and the fair value
less estimated costs to sell is also around P1,200,000.

By the end of 2020, the company decided to withdraw the sale and use the vehicle instead for its own use.

Calculate the income statement effect of the changes to a plan of sale assuming that at year-end the estimated
recoverable amount is (a) P1,125,000,and (b) P900,000.

June 2020