On Dec. 31, 2022, an entity classifies machinery with historical cost of P 3,000,000, accumulated depreciation of
Question:
On Dec. 31, 2022, an entity classifies machinery with historical cost of P 3,000,000, accumulated depreciation of P 2,000,000 and remaining useful life of 4 years as held for sale. The entity depreciates its machinery using straight-line method with no residual value. The fair value of the machinery on Dec. 31, 2022 is P 800,000 while costs to sell are estimated at P 50,000. The sale price of the machinery is P 800,000. On Dec. 31, 2023, the machinery remains unsold. The fair value of the machinery on Dec. 31, 2023 is P 750,000 which cost to sell are estimated at P 50,000. The entity sales price decreased the sales price to P 650,000. On Dec. 31, 2024, the machinery remains unsold. The fair value of the machinery on Dec. 31, 2024 is P 1,100,000 which cost to sell are estimated at P 50,000. The entity sales price decreased the sales price to P 600,000. On Dec. 31, 2025, the entity believed that the criteria for the classification as held for sale can no longer be met . Accordingly, the entity decided not to sell the asset but continue to use it. On that date the fair value of the machinery is P 900,000 and the cost of disposal is P 100,000 while the value in use is P 750,000.
1. Which of the following shall be recognized by the entity in its 2022 financial statements?
a. Held for sale asset = P 800,000 and Impairment loss = P 150,000
b. Held for sale asset = P 750,000 and Impairment loss = P 200,000
c. Held for sale asset = P 750,000 and Impairment loss = P 250,000
d. Held for sale asset = P 0 and Impairment loss = P 250,000
2. Which of the following shall be recognized by the entity in its 2023 financial statements?
a. Held for sale asset = P 700,000 and Impairment loss = P 50,000
b. Held for sale asset = P 650,000 and Impairment loss = P 100,000
c. Held for sale asset = P 650,000 and Impairment loss = P 150,000
d. Held for sale asset = P 700,000 and Impairment loss = P 300,000
3. Which of the following shall be recognized by the entity in its 2024 financial statements?
a. Held for sale asset = P 1,000,000 and Gain on impairment recovery = P 300,000
b. Held for sale asset = P 1,000,000 and Gain on impairment recovery = P 350,000
c. Held for sale asset = P 750,000 and Gain on impairment recovery = P 250,000
d. Held for sale asset = P 1,050,000 and Gain on impairment recovery = P 350,000
4. Which of the following shall be recognized by the entity in its 2025 financial statements?
a. Machinery = P 800,000 and Loss on reclassification = P 200,000
b. Machinery = P 250,000 and Loss on reclassification = P 750,000
c. Machinery = P 750,000 and Gain on reclassification = P 250,000
d. Held for sale asset = P 750,000 and Gain on reclassification = P 250,000
Expert Answer:
Lets go through each year and determine the recognition in the financial statements based on the giv... View the full answer
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
