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Topic on: Non Current Assets held for Sale On April 1, 2020, Brandy Company had a...

Topic on: Non Current Assets held for Sale

On April 1, 2020, Brandy Company had a machine with a cost of P5,000,000 and accumulated depreciation of P3,750,000.

On April 1, 2020, the entity classified the machine as held for sale and decided to sell the machine within one year.

On April 1, 2020, the machine had an estimated selling price of P500,000 and a remaining useful life of two years.

It is estimated that the disposal cost of the machine will be P50,000.

On December 31, 2020, the estimated selling price of the machine has increased to P750,000 with estimated disposal cost of P100,000.

  1. What is the impairment loss to be recognized in April 1, 2020?

a. 450,000

b. 800,000

c. 750,000

d. 0

2.What amount should be recognized as gain on reversal of impairment on Dec 31, 2020?

a. 468,750

b. 368,750

c. 300,000

d. 200,000

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Homework Answers

Answer #1

1. Option b is correct.

Impairment loss to be recognized in April 2020 = Carrying amount - Recoverable amount

Carrying amount=(5000000-3750000) = 1250000

Recoverable amount = 500000-50000=450000

Impairment loss = 1250000-450000=$800,000

2. Option b is correct

Carrying amount as on April 1,2020 after impairment= 450000

Further estimated life = 2 years = 24 months

Depreciation for 9 months from April to Dec= 450000*9/24 = 168750

Carrying amount as on Dec 31,2020 = 450000-168750 = 281250

Estimated recoverable amount as on Dec 31,2020 = 750000-100000=650000

Gain of Reversal of impairment = 650000-281250 =$368,750

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