far Flashcards by tin ⋆ 𐙚 ˚⋆౨ৎ˚⟡˖

What is the basic requirement for cash and cash equivalent?

A. Unrestricted in use for current operations.
B. Set aside for the payment of a long-term debt.
C. Set aside for the purchase of fixed assets.
D. Deposited in a bank.

A. Unrestricted in use for current operations.

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Statement 1: Deposit in transit, sometimes, can be used as a book reconciling item.
Statement 2: An accountant may leave book and bank balances unequal with each other provided
that the difference is immaterial.
Statement 3: Timing difference serves as one of the reasons why most of the time bank balance
is not equal with book balance.
Statement 4: Errors committed by an employee of the company in recording cash transactions
may form part of bank reconciling items.

A. false, true, true, false
B. false, false, true, false
C. true, true, true, false
D. true, false, true, false

B. false, false, true, false

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On January 1, 2022, TGIF Company sold land with historical cost of P4,500,000 in exchange for a P6,000,000 noninterest-bearing note due in equal annual installments of P2,000,000 every December 31 starting December 31, 2022. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type on January 1, 2022 was 10%. Round off present value factors to four decimal places.

What is the carrying amount of the note on December 31, 2022

A. 1,652,882
B. 1,818,298
C. 2,000,000
D. 3,471,180

D. 3,471,180

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Statement I: The interest rate to be used to compute for the interest income on a long-term
receivable is the _______.
Statement II: The interest rate to be used to compute for the interest receivable on a long-term
receivable is the _______.

A. Stated interest rate; Stated interest rate
B. Market interest rate; market interest rate
C. Stated interest rate; market interest rate
D. Market interest rate; Stated interest rate

D. Market interest rate; Stated interest rate

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Which of the following is correct about trade receivables being classified as current assets?

A. Trade receivables are classified as current assets if these are collectible within the company’s
normal operating cycle.
B. Trade receivables are classified as current assets if these are collectible within one year.
C. Trade receivables are classified as current assets if these are collectible within one year or the company’s normal operating cycle, whichever is longer.
D. Trade receivables are classified as current assets if these are collectible within one year or the
company’s normal operating cycle, whichever is shorter.

C. Trade receivables are classified as current assets if these are collectible within one year or the company’s normal operating cycle, whichever is longer.

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Roxas Corporation purchased equity securities on January 1, 2023, for P2,000,000. The company also paid commission, taxes and other transaction costs amounting to P50,000. The securities are intended to be held for long-term price change and were designated at fair value through other comprehensive income (FVTOCI). The securities had fair values of P1,750,000 and P2,100,000 on December 31, 2023, and December 31, 2024, respectively. No securities were sold during 2023 and 2024. What amount of unrealized gain or loss shall be reported on December 31, 2024, in the (1) OCI section of the statement of comprehensive income and (2) statement of financial position as a component of shareholders’ equity?

A. (1) 350,000; (2) 350,000
B. (1) 50,000; (2) 50,000
C. (1) 350,000; (2) 50,000
D. (1) 50,000; (2) 350,000

C. (1) 350,000; (2) 50,000

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The irrevocable designation to present all subsequent changes in fair value in other comprehensive income is only applicable to:

A. Investment in equity securities that is held for trading purposes.
B. Investment in equity securities that is held for non-trading purposes.
C. Investment in debt securities that is held for non-trading purposes.
D. Choices B and C.

B. Investment in equity securities that is held for non-trading purposes.

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ABC Co. owns 15% of the ordinary shares of XYZ Corporation. Which of the following is correct?

A. ABC Co. has the right to receive dividends equal to 15% of the total par value of XYZ Corporation’s ordinary shares outstanding.
B. ABC Co. has the right to receive dividends equal to 15% of the total fair value of XYZ Corporation’s ordinary shares outstanding as of the date of declaration.
C. ABC Co. has the right to receive dividends equal to 15% of the total dividends declared by XYZ Corporation for the period.
D. ABC Co. has the right to recognize investment income equal to 15% of XYZ Corporation’s profit for the period.

C. ABC Co. has the right to receive dividends equal to 15% of the total dividends declared by XYZ Corporation for the period

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At the beginning of current year, Ronald Company purchased 40% of the outstanding ordinary shares of
New Company, paying P6,400,000 when the carrying amount of the net assets of New Company equaled
P12,500,000. The difference was attributed to equipment which had a carrying amount of P3,000,000 and
a fair market value of P5,000,000 and to building which had a carrying amount of P2,500,000 and a fair
value of P4,000,000. The remaining useful life of the equipment and building was 4 years and 12 years,
respectively. During the current year, New Company reported net income of P5,000,000 and paid Ronald
Company cash dividends of P1,000,000.

What amount should be reported as investment income for the current year?

A. 2,000,000
B. 1,000,000
C. 1,800,000
D. 1,750,000

What is the carrying amount of the investment in associate at year-end?

A. 6,400,000
B. 8,150,000
C. 7,150,000
D. 7,400,000

D. 1,750,000
C. 7,150,000

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Which is an incorrect application of the equity method for an investment in associate?

A. Investment is recognized at cost on initial recognition.
B. The investor’s share in the associate’s profit is included in the investor’s profit or loss.
C. Distributions received from an associate increases the carrying amount of the investment.
D. The carrying amount is decreased by the investor’s share in the loss of the associate after the
date of acquisition.

C. Distributions received from an associate increases the carrying amount of the investment.

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On January 1, 2024, Snoopy Company purchased 12% bonds with face amount of P5,000,000 for
P5,500,000 including transaction cost of P100,000. The bonds are being held for trading. Moreover, it provides an effective yield of 10%. The bonds are dated January 1, 2024, and pay interest annually on December 31 of each year. The bonds are quoted at 115 on December 31,
2024. Which of the following statements is incorrect?

A. The bonds shall be initially measured at P5,400,000.
B. The interest income for 2024 is P600,000.
C. The bonds shall be reported at P5,750,000 on December 31, 2024.
D. The amount to be reported as unrealized gain on fair value change for the year 2024 is
P250,000.

D. The amount to be reported as unrealized gain on fair value change for the year 2024 is
P250,000.

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On January 2, 2023, Phantom Company purchased P1,000,000 8% bonds for P924,164 (including broker’s
commission of P50,000). The bonds were purchased to yield 10%. Interest is payable semi-annually every
June 30 and December 31.
Quoted price of the bonds as of the dates indicated follows:
December 31, 2023 - 98.0
December 31, 2024- 99.0
The business model for this investment is to hold and collect contractual cash flows that are solely
payments of interest and principal.

How much is the interest income for the year 2023?

A. 80,000
B. 87,602
C. 92,727
D. 100,000

At what amount shall the investment be presented on December 31, 2024?

A. 890,147
B. 950,922
C. 990,000
D. 1,000,000

C. 92,727
B. 950,922

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On January 1, 2024, NV Company purchased bonds with face amount of P5,000,000 for
P4,760,000 including transaction cost of P160,000. The business model is to collect contractual
cash flows and to sell the financial asset. The bonds mature on December 31, 2024, and pay 10%
interest annually on December 31 with a 12% effective yield. The bonds are quoted at 102 on
December 31, 2024. What amount of unrealized gain should be reported as component of other comprehensive income for 2024?

A. 0
B. 100,000
C. 268,800
D. 340,000

C. 268,800

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Debt securities are classified on the basis of

A. The entity’s business model for managing the financial assets.
B. The contractual cash flow characteristics of the financial asset.
C. Both A and B.
D. The entity’s intent on the usage of the security.

C. Both A and B.

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When debt securities classified as at amortized cost are disposed of, the difference between the net proceeds from sale and the carrying value of the bonds is:

A. Reported in profit or loss.
B. Reported in other comprehensive income.
C. Reported directly in retained earnings.
D. Not reported.

A. Reported in profit or loss.

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During 2024, Glacier Co. pays an insurance premium of P45,000 on a P1,000,000 life insurance policy covering the life of its president. The cash surrender value of the policy will increase from
P170,000 to P180,200 during 2024. The entity received dividends of P10,500 from the insurance company during 2024. The president died during 2024. The policy indicates that the cash surrender value is P175,600 at the time the president died, and half of the premium is refunded. The life insurance expense for the year 2024 is…

A. P6,400
B. P9,000
C. P12,300
D. P24,300

A. P6,400

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Piattos Corporation acquired a building to be classified as an investment property on January 1,
2023, for P9,000,000. At that date, the building had a useful life of 30 years and no residual value.
The accounting policy of the corporation is to account for the building under the fair value model.
On December 31, 2023, the fair value of the building was P9,600,000.

Which of the following statements are correct regarding the building owned by the entity?
I. The entity shall report gain on fair value change in 2023 amounting to P600,000.
II. The entity shall report gain on fair value change in 2023 amounting to P900,000.
III. The entity shall not report any depreciation expense under the fair value model.
IV. The building shall be carried in the December 31, 2023, statement of financial position at
P9,600,000.

A. Statements I and IV.
B. Statements I and III.
C. Statements I, III, and IV.
D. Statements II, III, and IV.

C. Statements I, III, and IV.

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SHAWANA Corp., a real estate company, had a building with a carrying amount of P1,000,000 on
December 31, 2023. This building was used as offices of the entity’s administrative staff. On this date, the entity intended to rent out the building to external parties. The staff will be moved to a
building purchased early in 2023. The original building has a fair value of P2,500,000.
Also, on December 31, 2023, the entity had land was held for sale in the ordinary course of
business. The land has a carrying amount of P2,000,000 and a fair value of P5,000,000 on December 31, 2023. The entity decided to hold the land for capital appreciation.
The entity’s accounting policy is to carry all investment property using the fair value model.

What total amount should be recognized as gain on transfer of classification to be reported in
profit or loss on December 31, 2023?

A. Zero
B. 1,500,000
C. 3,000,000
D. 4,500,000

C. 3,000,000

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Which of the following would qualify as investment property in accordance with IAS 40 Investment
Property?

I. Land held for capital appreciation
II. Land held for undetermined use
III. Land held for sale in the ordinary course of business
IV. Building held to earn rentals
V. Equipment held to earn rentals

A. I, IV and V
B. I, II and IV
C. I, II, IV and V
D. I, II and V

B. I, II and IV

Lex Company’s year-end inventory balance on December 31, 2023 is P1,650,000 based on physical count and before considering the following transactions:

 Goods shipped to Lex Company FOB Destination on December 20, 2023, were received on
January 2, 2024. The invoice cost is P300,000.

 Goods shipped to Lex Company FOB shipping point on December 28, 2023, were received on
January 4, 2024. The invoice cost is P170,000.

 Goods shipped from Lex Company to a customer FOB destination on December 27, 2023 were received by the customer on January 3, 2024. The sale price is P400,000 and the cost is P220,000.

 Goods shipped from Lex Company to a customer FOB destination on December 28, 2023 were received by the customer on December 30, 2023. The sale price is P200,000 and the cost is P130,000.

 Goods shipped from Lex Company to a customer FOB shipping point on December 26, 2023
were received by the customer on January 7, 2024. The sale price is P250,000 and the cost is P120,000.

What is the correct inventory balance on December 31, 2023?

A. 2,040,000
B. 2,160,000
C. 2,170,000
D. 2,290,000

A. 2,040,000

According to IAS 2 Inventories, inventories are:

A. Written down to net realizable value on an item-by-item basis.
B. Written down to net realizable value on a per classification basis (i.e., raw materials, workin progress, finished goods).
C. Always stated at cost.
D. A or B, depending on the company policy choice.

A. Written down to net realizable value on an item-by-item basis.

Inventory shortage results when the:

A. Inventory per estimation exceeds the inventory per physical count.
B. Inventory per physical count exceeds the inventory per estimation.
C. Purchase returns exceeds sales returns.
D. Sales returns exceeds purchase returns.

A. Inventory per estimation exceeds the inventory per physical count.

Which statement is true about biological assets?

A. Biological assets are measured at fair value less cost of disposal.
B. When fair value cannot be determined reliably, the biological asset shall be measured at cost less accumulated depreciation and impairment losses.
C. Where there is production cycle of more than one year for biological asset, separate
disclosure is encouraged for physical change and price change.
D. All of these statements are true about biological assets.

D. All of these statements are true about biological assets.

Barats Company contracted with another entity to construct a custom-made machinery. The machinery was completed and ready for use on January 1, 2024. Barats Company paid the
machinery by issuing a P500,000 three-year note that specified 4% interest, payable annually on
December 31 of each year. The cash price of the machine was not known. It was determined by
comparison with similar transactions that 12% was a reasonable rate of interest. The PV of 1 at 12% for 3 periods is 0.71 and the PV of an ordinary annuity of 1 at 12% for three periods is 2.40.

At what amount should Barats Company initially recognize the machinery?

A. P355,000
B. P403,000
C. P369,200
D. P500,000

B. P403,000

Leo Company recently acquired two items of equipment: a) Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was taken. b) Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash discount which was not taken. Which statement/s is/are true? I. Cash discounts, whether taken or not, shall be deducted from the purchase price of the PPE in determining its initial cost. II. The total increase in the equipment account as a result of the above transactions is P4,650,000. A. Statement I only. B. Statement II only. C. Both statements. D. Neither of the two statements.

C. Both statements.

On January 1, 2023, Brock Company traded an old welding machine which has a carrying value of P720,000 for a new printing equipment and paid a cash difference of P280,000. The fair value of the old welding machine is determined to be P1,700,000. What is the cost of the new asset acquired? A P1,200,000 B. P1,420,000 C. P1,700,000 D. P1,980,000

D. P1,980,000

Generally, the cost of property, plant, and equipment is its: A. Cash price equivalent at the date of acquisition. B. Present value at the date of acquisition. C. Fair value at the date acquisition. D. Carrying value at the date of acquisition.

A. Cash price equivalent at the date of acquisition.

Smith Company self-constructed an asset for its own use. Construction started on January 1, 2024, and the asset was completed on December 31, 2024. The company had a two-year, 18% loan of P500,000, specifically obtained to finance the asset construction. Funds not yet needed during the construction were temporarily invested in a short-term debt security yielding a P10,000 interest revenue. The company also had general borrowings amounting to P600,000, 5-year term with interest of 20% and P1,000,000, 10-year term with interest of 18% were used in part in the self- construction. Costs incurred during the year were as follows: January 1 – P400,000; April 1 – P500,000; July 31 – P480,000; and December 1 – P180,000. What amount of interest should Smith Company capitalize as part of the self-constructed asset? A. P155,000 B. P171,875 C. P181,875 D. P390,000 What would be the cumulative cost of the self-constructed asset on December 31, 2024? A. 1,560,000 B. 1,731,875 C. 1,741,875 D. 1,950,000

B. P171,875 B. 1,731,875

The period of time during which borrowing cost must be capitalized ends when: A. The asset is substantially complete and ready for the intended use. B. No further interest is being incurred. C. The asset is abandoned, sold or fully depreciated. D. The activities that are necessary to get the asset ready for the intended use have begun.

A. The asset is substantially complete and ready for the intended use.

Jin Company purchased equipment for P375,000. The equipment had an estimated 10-year service life. The company’s policy for 10-year assets is to use the 150% declining balance depreciation method for the first five years of the asset's life and then switch to the straight-line depreciation method. What amount should Lei report as depreciation expense for the equipment in the sixth year? A. P16,640 B. P32,625 C. P33,278 D. P41,598

C. P33,278

On January 1, 2022, Fantastic Company acquired a machinery at a cost of P1,000,000. The machine was depreciated over its useful life of 4 years on a straight-line basis. On January 1, 2022, the company spent P200,000 to improve the productive capacity of the machinery. As a result, the company’s production rate increased by 50%. How much depreciation expense shall be recognized for the year 2024 in accordance with IAS 16 Property, Plant, and Equipment? A. P250,000 B. P300,000 C. P350,000 D. P450,000

C. P350,000

Which statement best describes the term “depreciation”? A. The removal of an asset from the statement of financial position. B. The systematic allocation of the cost of an asset less residual value over its useful life. C. The amount by which the recoverable amount of an asset exceeds carrying amount. D. The amount by which the carrying amount of an asset exceeds recoverable amount.

B. The systematic allocation of the cost of an asset less residual value over its useful life.

Grave Company purchased a machine for P7,000,000 on January 1, 2023 and received a government grant of P1,000,000 toward the capital cost. The machine is to be depreciated on a straight-line basis over 5 years and estimated to have a residual value of P500,000 at the end of this period. Which of the following statements are true? I. If the entity’s accounting policy is to treat the grant as a deferred income, the carrying amount of the machine on December 31, 2023, should be P5,700,000. II. If the entity’s accounting policy is to treat the grant as a deferred income, the entity shall set-up a liability account for the grant and amortize it over the grant period. III. If the entity’s accounting policy is to treat the grant as a reduction in the cost of the asset, the depreciation expense for 2023 would be lower by P200,000 as compared to the depreciation expense that would have been recognized if the entity’s accounting policy is to treat the grant as a deferred income. A. Statement II only. B. Statements I and II. C. Statements II and III. D. Statements I, II, and III.

D. Statements I, II, and III.

Prowess Company received a government grant of P600,000 related to depreciable asset acquired on January 1, 2022, for P6,600,000. This grant was deducted from the cost of the asset with a useful life of 10 years and residual value of P500,000. On January 1, 2023, the grant became fully repayable due to noncompliance with conditions. What is the depreciation expense to be reported for 2023? A. 550,000 B. 600,000 C. 610,000 D. 670,000

D. 670,000

In the case of a government grant related to an asset, which of following accounting treatment is prescribed? A. Record the grant at a nominal value in the first year and write it off in the subsequent year. B. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset. C. Record the grant at fair value in the first year and take it to income in the subsequent year. D. Take it to the income statement and disclose it as an extraordinary gain.

B. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset.

Lola Heart Inc. owns a fleet of over 30 cars and 20 ships. It operates in a capital-intensive industry and thus has significant other property, plant, and equipment that it carries in its books. It decided to revalue its property, plant, and equipment. The company's accountant has suggested the alternatives that follow. Which one of the options should Lola Heart Inc. select to be in line with the provisions of PAS 16? A. Revalue only one-half of each class of property, plant, and equipment, as that method is less cumbersome and easy compared to revaluing all assets together. B. Revalue one ship at a time, as it is easier than revaluing all ships together. C. Since assets are being revalued regularly, there is no need to depreciate. D. Revalue an entire class of property, plant, and equipment

D. Revalue an entire class of property, plant, and equipment

equipment is being depreciated using straight-line method over its estimated useful life of 10 years. On December 31, 2021, a determination was made that the asset's recoverable amount was only P480,000. On December 31, 2023, the asset's recoverable amount was determined to be P540,000 and management believes that the impairment previously recognized should be reversed. How much gain on recovery of impairment should be reported in 2023? A. Zero. B. P200,000 C. P220,000 D. P300,000

B. P200,000

An asset is said to be impaired when the asset’s A. Carrying amount exceeds its recoverable amount. B. Recoverable amount exceeds its carrying amount. C. Carrying amount exceeds its fair value. D. Fair value exceeds its carrying amount

A. Carrying amount exceeds its recoverable amount.

On January 1, 2021, Primer Company purchased a patent for a new consumer product for P900,000. At the time of purchase, the patent was valid for 15 years. However, the useful life of the patent was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2024, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should be charged against income in 2024 if amortization is recorded at the end of each year? A. 90,000 B. 540,000 C. 630,000 D. 720,000

C. 630,000

The carrying amount of an intangible asset is: A. the fair value of the asset at a balance sheet date. B. the asset's acquisition cost less the total related amortization recorded to date. C. equal to the balance of the related accumulated amortization account. D. the assessed value of the asset for intangible tax purposes.

B. the asset's acquisition cost less the total related amortization recorded to date.

Under current accounting practice, intangible assets are classified as: A. amortizable or unamortizable. B. limited-life or indefinite-life. C. specifically identifiable or goodwill-type. D. legally restricted or goodwill-type.

B. limited-life or indefinite-life.

On June 1, 2024, Starr Company had an equipment with a cost of P10,000,000 and accumulated depreciation of P7,500,000. On the same date, the entity classified the equipment as held for sale and decided to sell it within one year. The equipment had an estimated selling price of P2,000,000 and a remaining useful life of 4 years. It is estimated that selling cost associated with the disposal of the equipment will be P200,000. On December 31, 2024, the estimated selling price of the equipment had increased to P2,300,000 with estimated cost of disposal of P250,000. Based on the foregoing, which of the following statements are correct? I. PFRS 5 states that assets held for sale must be initially recognized at the lower between its carrying value and recoverable amount. II. PFRS 5 states that assets that are held for sale must not be depreciated. III. The maximum allowable amount to be recognized as gain on reversal of impairment is P700,000. A. Statements I and II. B. Statements I and III. C. Statements II and III. D. Statements I, II, and III.

C. Statements II and III.

Ysabelle Company purchased a machine for P2,500,000 on January 1, 2023, with a useful life of 10 years and no residual value. On December 31, 2024, the entity classified the machine as held for sale. The fair value of the machine on December 31, 2024, was P1,650,000 and the cost to dispose was P50,000. On December 31, 2025, 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 asset but to continue to use it. On this date, the fair value of the machine was P1,900,000 and the cost to dispose was P100,000. The value in use was determined to be P1,650,000. What is the measurement of the machine that ceases as held for sale on December 31, 2025? A. 1,600,000 B. 1,750,000 C. 1,800,000 D. 2,000,000

B. 1,750,000

Bam Company is a diversified entity 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 November 1, 2023, the management voted to approve the disposal of this division. The sale is expected to occur in October 2024. The food distribution had revenue of P17,500,000 and expenses of P13,500,000 for the period January 1 to October 31, and revenue of P7,500,000 and expenses of P5,000,000 for the period November 1 to December 31. The carrying amount of the food distribution division’s net assets on December 31, 2023 was P28,000,000 and the fair value less cost to sell was P29,000,000. The sale contract required Bam to terminate certain employees incurring an expected termination cost of P2,000,000 to be paid in 2024. The income tax rate is 30%. What amount should be reported as income from discontinued operation for 2023? A. 3,150,000 B. 3,850,000 C. 4,150,000 D. 4,500,000

A. 3,150,000

Which of the following statements are correct regarding the provisions of PFRS 5, Non-Current Assets Held for Sale and Discontinued Operations? I. Non-current asset classified as held for sale shall be presented as current asset. II. An entity classified a non-current asset accounted for under the cost model as held for sale at the current year-end. Because no offers were received at an acceptable price, the entity decided at the end of next year not to sell the asset but to continue to use it. The asset shall be measured at the end of next year at the lower of carrying amount on the basis that the asset had never been classified as held for sale and recoverable amount and recoverable amount. III. In presenting the results of discontinued operations, an entity shall disclose a single amount, net of tax, on the face of the income statement below the income from continuing operations but before net income. A. Statements I and II. B. Statements I and III. C. Statements II and III. D. Statements I, II, and III.

D. Statements I, II, and III.