NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATION

PROBLEM 1:

On July 1, 2022, an entity had an equipment with cost of P5,000,000 and accumulated depreciation of

P3,000,000. On that date, the entity classified the equipment as held for sale. On the same date, the

equipment had an estimated selling price of P1,300,000, estimated selling cost of P100,000 and
remaining life of 4 years. On December 31, 2022, the estimated selling price of the equipment had
increased to P1,500,000 with estimated selling cost of P50,000.

1. What amount should be reported as impairment loss for 2022?

a. 800,000

b. 700,000

c. 600,000

d. 500,000

2. What amount should be reported as gain on reversal of impairment in 2022?

a. 650,000

b. 200,000

c. 250,000

d. 300,000

PROBLEM 2

An entity is diversified with nationwide interests in commercial real estate development, banking, mining

and food distribution. The food distribution division was deemed to be inconsistent with the long-term

direction of the entity. On October 1, 2022, the board of directors voted to approve the disposal of this

division. The sale is expected to occur in August 2023.

The food distribution had the following revenue and expenses in 2022: January 1 to September 30,

revenue of P35,000,000 and expenses of P25,000,000; October 1 to December 31, revenue of

P15,000,000 and expenses of P10,000,000. The carrying amount of the division assets on December 31,

2022 was P50,000,000 and the recoverable amount was estimated to be P45,000,000. The sale contract

required the entity to terminate certain employees incurring an expected termination cost of P2,000,000
to be paid by December 15, 2023. The income tax rate is 25%.

What amount should be reported as income from discontinued operations for 2022?

a. 8,000,000

b. 7,500,000

c. 9,750,000

d. 6,000,000

PROBLEM 3

On July 1, 2022, an entity decided to discontinue its Electronics Division, a separately identifiable

component of business. On December 31, 2022, the division had not been completely sold. However,

negotiations for the final and complete sale are progressing in a positive manner and it is probable that
the disposal will be completed within a year. Analysis of the records for the year disclosed the following
data relative to the Electronics Division:

Operating loss for 2022 7,000,000

Loss on disposal of some Electronics Division assets during 2022 500,000

Expected operating loss in 2023 preceding final disposal 2,000,000

Expected gain in 2023 on disposal of division 1,500,000

Income tax rate 25%

What amount should be reported as loss from discontinued operation in 2022?

a. 7,500,000

b. 5,625,000

c. 6,000,000

d. 4,500,000
PROBLEM 4

An entity had two operating divisions, one manufactures machinery and the other breeds and sells
horses. Both divisions are considered separate components.

The horse division has been unprofitable and on December 15, 2022, the entity adopted a formal plan to

sell the division. At December 31, 2022, the component was considered held for sale.

On December 31, 2022, the carrying amount of the assets of the horse division was P7,000,000. On that

date, the fair value of the assets less cost of disposal was P5,000,000. The before-tax operating loss of

the horse division for the year was P2,500,000.

The after-tax income from continuing operations of the entity for 2022 was P9,000,000. The income tax

rate is 25%.

1. What amount should be reported as loss from discontinued operation for 2022?

a. 4,500,000

b. 3,375,000

c. 1,875,000

d. 1,500,000

2. What amount should be reported as net income for 2022?

a. 9,000,000

b. 4,500,000

c. 5,625,000

d. 7,125,000