7455 NCA HFS & Discontinued Operation Flashcards
(8 cards)
An entity purchased an equipment for P8,000,000 on January 1, 2025. The equipment had a useful life of 5 years with no residual value.
On December 31, 2025, the entity classified the equipment as held for sale. On such date, the fair value less cost of disposal of the equipment was P4,500,000.
On December 31, 2026, the entity believed that the criteria for classification as held for sale can no longer be met.
Accordingly, the entity decided not to sell the equipment but to continue to use it. On December 31, 2026, the fair value less cost of disposal of the equipment was P3,900,000.
I. A noncurrent asset classified as held for sale shall measured at the lower between fair value less cost of disposal and carrying amount.
II. A noncurrent asset that ceases to be classified as held for sale shall be measured at the lower between recoverable amount and carrying amount on the basis that the asset had never been classified as held for sale.
III. The impairment loss on the equipment should be reported at P1,900,000 on December 31, 2025.
IV. The loss on reclassification of the equipment from held for sale to property, plant and equipment should be reported at P600,000 for 2025
A. All statements are true
B. All statements are not true
C. Only statements I, II and III are true
D. Only statements I and II are true
A. All statements are true
Ceases to be held for sale
CV as held for sale > Measurement = Loss
4.5M > 3.9M = 600k loss
Measurement
is lower of
a. CV had it not been HFS = 4.8M XX
b. RA (Higher of FVLCOD VIU) = 3.9M //
12/31/25
Depreciation 1.6M
Accu Depre 1.6M
Equipment - HFS 6.4M (CA)
Accu Depre 1.6M
Equipment - PPE 8M
Impair Loss 1.9M (6.4 - 4.5 FVLCOD)
Equipment - HFS 1.9M
12/31/26
Equipment - PPE 4.5M
Equipment - HFS 4.5M
Loss 600k
Eqpt - PPE 600k
An entity accounted for land using the revaluation model. On October 1, 2025, the entity classified a land as held for sale. At that date, the carrying amount of the land was P5,000,000 and the balance in the revaluation surplus was P1,500,000. At the same date, the fair value of the land was estimated at P5,500,000. The estimated cost of disposal is P100,000.
On December 31, 2025, the fair value less cost of disposal of the land did not change. On January 31, 2026, the land was sold for P6,000,000.
I. The impairment loss should be reported at P100,000 on October 1, 2025.
II. The gain on disposal of land should be reported at P600,000 on January 31, 2026
III. The revaluation surplus should be reclassified to retained earnings at P2,000,000 on January 31, 2026.
A. All statements are true
B. All statements are not true
C. Only two statements are true
D. Only one statement is true
A. All statements are true
Oct 1, 2025
FVLCOD: 5.4M
CV(=FV): 5.5M (since reval)
Imp Loss 100k
Mahug equal to COD
Net proceeds: 6M
CV as HFS 5.4M
Gain 600k
RS, beg 1.5M
Inc on Oct from 5M to 5.5M 500k
RS –> RE 2M
10/1/25
Land 500k
RS 500k
Land - HFS 5.5M
Land - PPE 5.5M
Imp Loss 100k
Land - HFS 100k
1/31/26
Cash 6M
Land - HFS 5.4M
Gain 600k
RS 2M
RE 2M
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, 2025, the board of directors voted to approve the disposal of this
division. The sale is expected to occur in August 2026.
The food distribution had the following revenue and expenses in 2025: 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, 2025 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, 2025. The income tax rate is 25%.
I. A component of an entity is classified as discontinued operation when the entity has actually disposed of the operation or when the operation meets the criteria as held for sale.
II. The component of an entity must be sold within one year from the end of the reporting period to be classified as discontinued operation.
III. The income from discontinued operation should be reported at P6,000,000 for 2025.
A. All statements are true
B. All statements are not true
C. Only statements I and III are true
D. Only Statements I and II are true
C. Only statements I and III are true
Revenue whole yr 50M
Expenses whole yr (35M)
15M
Loss on remeasurement (5M)
Termination benefits (2M)
8M * 75%
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, 2025, the entity adopted a formal plan to sell the division. At December 31, 2025, the component was considered held for sale.
On December 31, 2025, 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 2025 was P2,500,000.
The after-tax income from continuing operations of the entity for 2025 was P9,000,000. The income tax rate is 25%.
I. The loss from discontinued operation should be reported at P3,375,000 for 2025.
II. The entity should report net income of P5,625,000 for 2025.
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
A. Statements I and II are true
(2M) Imp Loss
(2.5M)
=(4.5M)
*75%
3,375,000
9M
(3.375M)
5,625,000
An entity shall classify a noncurrent asset as held for sale when
A. The carrying amount of the asset is recovered through a sale.
B. The carrying amount of the asset is recovered through continuing use.
C. The noncurrent asset is to be abandoned.
D. The noncurrent asset group is idle or retired from active use.
A. The carrying amount of the asset is recovered through a sale.
A noncurrent asset that is to be abandoned should not be classified as held for sale because
A. The carrying amount is recovered principally through continuing use.
B. It is difficult to value.
C. It is unlikely that the noncurrent asset will be sold within 12 months.
D. It is unlikely that there will be an active market for the noncurrent asset.
A. The carrying amount is recovered principally through continuing use.
Which is not a criterion for an operation to be classified as discontinued?
A. The operation should represent a separate major line of business or geographical area.
B. The operation is part of a single plan to dispose of a separate major line of business or geographical area.
C. The operation is a subsidiary acquired exclusively with a view to resale.
D. The operation must be sold within three months of the year-end.
D. The operation must be sold within three months of the year-end.
Which is not required for component’s results to be classified as discontinued operations?
A. Management must have entered into a sale agreement
B. The component is available for immediate sale
C. The operation and cash flows of the component will be eliminated from the operations of the entity as a result of the disposal
D. The entity will not have any significant continuing involvement in the operation of the component after disposal
A. Management must have entered into a sale agreement
