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    Problem 3 provides initial cost and

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    17002

    Uploaded by

    Alvin Yerc
    394 views2 pages
    Problem 3 provides initial cost and

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    Aud prob

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    Problem 3 provides initial cost and

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    394 views2 pages

    17002

    Uploaded by

    Alvin Yerc
    Problem 3 provides initial cost and

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    College of Accounting Education

    3/F F. Facundo Hall, B & E Bldg.


    Matina, Davao City Philippines
    Phone No.: (082) 305-0645

    Applied Auditing
    Quizzer 18
    Revaluation and Impairment

    Problem 1
    William Company owned a building on January 1, 2013 with historical cost of P40,000,000. The property
    is depreciated over 40 years on a straight line basis with no residual value. The entity adopted the
    revaluation model of measuring property, plant and equipment. The building has so far been revalued
    at fair value as follows:

    January 1, 2014 46,800,000


    January 1, 2016 45,500,000
    January 1, 2018 30,000,000
    January 1, 2020 50,000,000

    Questions:

    1. What is the revaluation surplus on December 31, 2014?

    2. What is the revaluation surplus on December 31, 2015?

    3. What is the Depreciation of the building on December 31, 2016?

    4. How much is the impairment loss at January 1, 2018, if any?

    5. How much is the gain on recovery of impairment at January 1, 2020, if any?

    Problem 2
    Honesto Company has one division that performs machinery operations on parts that are sold to
    contractors. A group of machines have an aggregate cost and accumulated depreciation on January 1,
    2018 as follows:

    Machinery 90,000,000
    Accumulated depreciation 25,000,000
    Carrying amount 65,000,000

    The machines have an average remaining life of 4 years and it has been determined that this group of
    machines constitutes a cash generating unit. The fair value less cost to sell of this group of machines
    in an active market is determined to be P48,000,000.

    Based on supportable and reasonable assumptions, the financial forecast for this group of machines
    reveals the following cash inflows and cash outflows for the next four years:

    Cash inflows Cash outflows


    2018 30,000,000 15,000,000
    2019 42,500,000 17,500,000
    2020 27,500,000 17,500,000
    2021 18,000,000 4,000,000

    It is believed that a discount rate of 8% is reflective of time value of money and the risks specific to
    the group of machines.

    On December 31, 2019, the fair market value of the machinery totaled P65 million pesos. The pre-
    impairment depreciation of the machinery amounted to P5,000,000.

    Questions:

    1. How much is the recoverable cost the machinery on January 1, 2018?

    2. How much is the depreciation of the machinery on December 31, 2018?

    3. How much is the carrying value of the machinery had no impairment been in the records on
    December 31, 2019?

    4. How much is the gain on recovery of impairment, if any, on December 31, 2019?

    5. How much is the depreciation of the machinery on December 31, 2019?


    College of Accounting Education
    3/F F. Facundo Hall, B & E Bldg.
    Matina, Davao City Philippines
    Phone No.: (082) 305-0645

    Problem 3

    Mark Company ha the following information on January 1, 2010 related to its property, plant, and
    equipment:

    Land 30,000,000
    Building 300,000,000
    Accumulated Depreciation—building (37,500,000)
    Machinery (2 machines) 400,000,000
    Accumulated depreciation—machinery (100,000,000)
    Carrying Amount 592,500,000

    There were no additions nor disposals during 2010. Depreciation is computed using straight line over
    20 years for building and 10 years for machinery. On June 30, 2010, all the property, plant, and
    equipment were revalued as follows:

    Replacement Cost Sound Value


    Land 40,000,000 40,000,000
    Building 500,000,000 425,000,000
    Machinery 650,000,000 455,000,000

    On June 20, 2011, building was revalued at 300,000,000, its fair market value at that time. one of the
    machines was sold on December 31, 2011 at P250,000,000

    Questions:

    1. What is the revaluation surplus on June 30, 2010?


    2. What is the total depreciation for 2010?
    3. What is the revaluation surplus on December 31, 2010?
    4. What is the impairment loss on December 31, 2011?
    5. What is the revaluation surplus on December 31, 2011?
    6. Gain on sale on December 31, 2011?

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