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AnswerQuiz - Module 10

The document contains multiple questions regarding impairment testing and loss recognition for various equipment and intangible assets. For the first question, the impairment loss for 2016 should be 500,000. For the second question regarding Cynosure Company's equipment, the amount to report it at as of December 31, 2016 is 1,300,000.

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Alyanna Alcantara
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6K views

AnswerQuiz - Module 10

The document contains multiple questions regarding impairment testing and loss recognition for various equipment and intangible assets. For the first question, the impairment loss for 2016 should be 500,000. For the second question regarding Cynosure Company's equipment, the amount to report it at as of December 31, 2016 is 1,300,000.

Uploaded by

Alyanna Alcantara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Listless Company acquired equipment on January 1, 2015 for P5,000,000.

The equipment had a 10-year


useful life and no residual value. On December 31, 2016 , the following information was obtained:
Expected value of undiscounted cash flows 3,600,000
Fair value estimated with in-use premise 3,700,000
Fair Value with in exchange premise 3,500,000
What amount should be recognized as impairment loss for 2016?
300,000
400,000
500,000
0

Cynosure Company has an equipment with carrying amount of P1,600,000on December 31, 2016 after
recording depreciation for 2016. The following information is available on December 31, 2016 relative to
the equipment:
Fair Value of similar equipment 1,400,000
Discounted Future Cash flows 1,300,000
Undiscounted future cash flows 1,350,000
At what amount should the equipment be reported on December 31, 2016?
1,600,000
1,400,000
1,300,000
1,350,000

On January 1, 2016, Zimbabwe Company has a machinery with a cost of P5,000,000 and accumulated
depreciation of P1,500,000.
The machinery was acquired on January 1, 2013 and had been depreciated using the straight line
method with useful life of 10 years and no residual value. On January 1, 2016, the entity has properly
tested the machine to be impaired.
The machinery has a remaining life of 5 years and is expected to generate undiscounted net cash inflows
of P800,000 per year. The fair value of the machinery on January 1, 2016 is P3,000,000.
The appropriate discount rate is 8%. The present value of an ordinary annuity of 1 at 8% for 5 periods is
3.99.
What mount should be recognized as impairment loss for 2016?
308,000
500,000
808,000
0
What is the depreciation of the machinery for 2016?
638,400
600,000’
319,200
300,000

Visayas Company showed the following intangible assets:


Trademark 6,000,000
Patent 3,000,000
The trademark has 8 years remaining in the legal life. However it is anticipated that the trademark will
be routinely renewed in the future.
Thus, the trademark is considered to have an indefinite life. Because of an inflationary economy, the
trademark is expected to generate cash flows of P200,000 per year.
The appropriate discount rate is 10%. Mathematically, the discounted value of a stream of indefinite
annual cash flows is simply computed by dividing the annual cash flow by the discount rate.
The patent has a remaining economic life of 5 years. It is expected that the patent will generate cash
flows of P500,000 per year.
The appropriate discount rate is also 10%. The present value of an ordinary annuity of 1 at 10% for 5
periods is 3.79.
What total amount should be recognized as impairment loss for the year?
a. 1,105,000
b. 5,105,000
c. 4,000,000
d. 0

Lobo Company reported an impairment loss of P2,000,000 in 2015. This loss was related to an item of
PPE which was acquired on January 1, 2014 with the 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, 2015, the entity reported this asset at P6,000,000 which is the fair value on the same
date.
On December 31, 2016, the entity determined that the fair value of the impaired asset had increased to
P7,500,000.
What amount of gain on reversal of impairment should be reported in the income statement for 2016?
a. 2,250,000
b. 1,750,000
c. 1,500,000
d. 0

On January 1, 2014, Reed Company purchased a machine for P8,000,000 and established an annual
depreciation charge of P1,000,000 over an eight-year life.
During 2017, after issuing the 2016 financial statements, the entity concluded that the machine suffered
permanent impairment and P2,000,000 is a reasonable estimate of the amount expected to be
recovered through use of the machine for the period January 1, 2017 through December 31, 2021.
What is the impairment loss for 2016?
a. 3,000,000
b. 4,000,000
c. 2,000,000
d. 0

What is the carrying amount of the machine on December 31, 2017?


a. 4,000,000
b. 1,000,000
c. 1,600,000
d. 0
Gei Company determined that due to obsolescence, equipment with an original cost of P9,000,000 and
accumulated depreciation on January 1, 2016 of P4,200,000 had suffered permanent impairment and as
a result should have a carrying amount of only P3,000,000 as of the beginning of the year.
In addition, the remaining useful life of the equipment was reduced from 8 years to 3.
On December 31, 2016, what amount should be reported as accumulated depreciation?
a. 1,000,000
b. 5,200,000
c. 6,000,000
d. 7,000,000

In January 2015, Winn Company purchased equipment at a cost of P5,000,000. The equipment had an
estimated residual value of P1,000,000, an estimated 8-year useful life and was being depreciated by
straight line method.
Two years later, it became apparent that this equipment suffered a permanent impairment of value.
In January 2017, management determined the carrying amount should be only P1,750,000 with a 2 year
remaining useful life, and the residual value should be reduced to P250,000.
What is the impairment loss for 2016?
a. 4,000,000
b. 3,250,000
c. 2,250,000
d. 0

On December 31, 2017, what is the carrying amount of the equipment?


a. 3,500,000
b. 1,750,000
c. 1,500,000
d. 1,000,000

What is impairment of an asset?


a. A fall in the market value of an asset so that the recoverable amount is less than the carrying
amount.
b. A decline in value of an asset so that the recoverable amount is more than the carrying amount.
c. An allocation of cost over the useful life on asset.
d. A change in the estimated useful life of an asset.

Which of the following is not cost of disposal?


a. Legal cost
b. Stamp and similar transaction tax
c. Cost of removing the asset
d. Finance cost

Value in use of an asset is equal to


a. Undiscounted future net cash flows from the use of the asset
b. Undiscounted future net cash flows from the use and eventual disposition of the asset
c. Discounted future net cash flows from the use of the asset
d. Discounted future net cash flows from the use and eventual disposition of the asset

The estimates of future cash flows in calculating value in use include all of the following except
a. Cash inflows from the continuing use of the asset
b. Cash outflows incurred to generate the cash inflows from the continuing use of the asset
c. Net cash flows from the disposal of the asset at the end of the useful life
d. Future cost of improving or enhancing the performance of the asset

All of the following statements are true with regard to impairment of asset, except
a. If impairment indicators are present, the entity must conduct an impairment test
b. The impairment test compares the carrying amount with the lower of fair value less costs of
disposal and value in use
c. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized.
d. If recoverable amount is higher than carrying amount, no impairment loss is recognized.

Which of the following is not relevant in determining the value in use?


a. The expected future cash flows from the asset
b. The carrying amount of the asset
c. Expectation about possible variation in the amount and timing of future cash flows.
d. The time value of money

Which of the following best describes the higher of FVLCD and VIU?
a. Recoverable amount
b. revalued amount
c. Depreciable Amount
d. Carrying amount

What is the best evidence of fair value?


a. Quoted price in an active market for identical asset
b. Quoted price in an active market for similar asset
c. Quoted price in an inactive market for identical asset
d. Quoted price in an inactive market for similar asset

The internal sources of information indicating possible impairment include all of the following except
a. Obsolescence or physical damage of an asset
b. Significant change in the manner or extent in which the asset is used with an adverse effect on
the entity
c. Evidence that the economic performance of an asset will be worse than expected
d. Significant decrease in the market value of the asset

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