NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATION

1. C ​5,000,000 ​lower of carrying amount and fair value less costs sell
2. A – not available for immediate sale in its present condition
3. D (5,000,000 fair value – 200,000 costs to sell) = ​4,800,000
4. B – not available for immediate sale in its present condition; PPE at ​4.8M (5M – 200K)
because the manufacturing facility is impaired.
5. C (6M – 200K) = ​5.8M ​investment property because the property is not available for sale in
its present condition
6. B (5.8M ​(see no. 5) ​+ 200K costs of renovations = ​6M​. The land and buildings are classified
as investment property and ​not ​as ​held for sale assets because they are ​not ​available for
immediate sale in their present condition.
7. A – Sale is ​not​ highly probable
8. A – PPE at ​carrying amount​, the lower amount. A sale and leaseback ​cannot ​lead to held for
sale classification.
9. B – The exceptions to the ​“1-yr. requirement” ​are met.
10. B – The exceptions to the ​“1-yr. requirement” ​are met.
11. B ​340,000​,​ ​the fair value less costs to sell, which is lower than the carrying amount of
P360,000.
12. C – The asset is reclassified back to PPE at the ​lower​ of recoverable amount (i.e., ​300,000​)
and the carrying amount adjusted for depreciation not recognized during the asset was
classified as held for sale (i.e., 350,000).
13. B – The event is disclosed only as a ​non-adjusting event after the reporting period​.
14. C
Jan. Held for sale asset (1.4M – 80K) 1,320,000
1, Accumulated depreciation 2,400,000
20x1 Impairment loss 280,000
Building 4,000,000

15. B ​360,000,​ limited to the total impairment losses recognized in previous years​ ​(1,240,000 -
1,600,000 original carrying amount)
16. A ​Step #1: ​59.6M – 64M = ​4.4M Impairment loss​;
Step #2: ​52M – 59.6M = ​7.6 Additional impairment loss
17. A ​8,800,000 -​ Carrying amount as remeasured immediately before classification as held for
sale. (See also solutions below)
18. B (Refer to solutions below)
19. C (Refer to solutions below)
Solutions:
Fair value less costs to sell 52,000,000
Carrying amount as remeasured immediately before
classification as held for sale 59,600,000
Additional impairment loss on initial classification under PFRS 5 (7,600,000)
Allocation to goodwill 6,000,000
Impairment loss to be allocated to the other assets 1,600,000
The ​excess​ is allocated to the other assets ​pro rata ​based on their ​carrying amounts​ ​as follows:
Allocation of
Carrying Impairment
Assets amt. Fraction Loss
Inventory N/A N/A N/A
Investment in
FVOCI N/A N/A N/A
IP – cost 22,800,000 22.8/38.8 (940,206)
PPE – cost
model 16,000,000 16/38.8 (659,794)
38,800,000 (1,600,000)

The carrying amount ​after allocation of impairment loss i​ s:

Inventory 8,800,000
Investment in FVOCI 6,000,000
Investment property (at cost model) (22.8M – 940,206) 21,859,794
PPE (at cost model) (16M – 659,794) 15,340,206
Goodwill -
Total 52,000,000

20. D
a. Carrying amount adjusted for depreciation not recognized ​(1.6M x ¾) = ​1.2M;
b. Recoverable amount = ​ ​1.240M​ ​the higher of FVLCS and VIN
Measurement = ​1.2M - the lower of a and b above
21. D ​20x2: ​(1,600,000 – 2,600,000) x 70% = ​(700,000)
​20x1: ​(-2,800,000 x 70%) = ​(1,960,000)
22. D
Solution:
Operating profit – January 1 to April 30, 20x1 400,000
Operating loss – May 1 to December 31, 20x1 (200,000)
Impairment loss (32M – 26M) (6,000,000)
Severance pay (220,000)
Employee relocation costs (100,000)
Total (6,120,000)
Multiply by: 1 ​minus ​Tax rate 70%
Loss for the period​ ​from discontinued operations (4,284,000)

23. C

24. A

25. D
26. C

27. D

28. B

29. B

30. B

31. B

32. A

33. C

34. A

35. D

36. C

37. D

38. A

39. C

40. B
 INTERIM FINANCIAL REPORTING

Exercises/Assignments
Answer the following Problems.
1. ​Which of the following statements is true regarding interim reporting for companies that
prepare their financial statements in accordance with IFRS?
a. The discrete view is required for interim financial statements.
b. Interim reports are required on a quarterly basis.
c. Interim reports are not required for IFRS reporting.
d. Interim reports require the preparation of only a statement of earnings and a statement of
financial position.

2. ​Noble corporation prepares its financial statement in accordance with IFRS. If noble prepares
Interim financial statements, which statements are required?
I. Statement of Financial Position
II. Statement of Income
III. Statement of Comprehensive Income
IV. Statement of Cash Flows
V. Statement of changes in equity
a. I, II, and III.
b. I, II, IV, and V.
c. II, III, and IV.
d. I, III, IV, and V.

3. ​Which of the following describes IFRS’s requirements regarding interim financial statements?
a. Interim financial statements are required.
b. If interim financial statements are presented, four basic financial statements are required.
c. If interim financial statements are presented, at least a balance sheet and profit and loss are
required.
d. Interim financial statements must be presented with the most recent annual financial
statements.

4. ​For interim financial reporting, a company’s income tax provision for the second quarter of
year 1 should be determined using the
a. Effective tax rate expected to be applicable for the full year of year 1 as estimated at the end of
the first quarter of year 1.
b.Effective tax rate expected to be applicable for the full year of year 1 as estimated at the end of
the second quarter of year 1.
c.Effective tax rate expected to be applicable for the second quarter of year 1.
d. Statutory tax rate for year 1.
5. ​ASC Topic 270, ​Interim Reporting,​ states that interim financial reporting should be viewed
primarily in which of the following ways?
a. As useful only if activity is spread evenly throughout the year.
b. As if the interim period were an annual accounting period.
c. As reporting for an integral part of an annual period.
d. As reporting under a comprehensive basis of accounting other than GAAP.

6. ​Conceptually, interim financial statements can be described as emphasizing

a. Timeliness over reliability.
b. Reliability over relevance.
c. Relevance over comparability.
d. Comparability over neutrality.

7. ​Advertising costs may be accrued or deferred to provide

an appropriate expense in each period for
Interim financial reporting Year-end financial reporting
a. Yes No
b. Yes Yes
c. No No
d. No Yes

8. ​A planned volume variance in the first quarter, which is expected to be absorbed by the end of
the fiscal period, ordinarily should be deferred at the end of the first quarter if it is
Favorable Unfavorable
a. Yes No
b. No Yes
c. No No
d. Yes Yes

9. It means the preparation and presentation of financial information for a period of less than one
year.
a. Segment Financial Reporting
b. Interim Financial Reporting
c. Annual Financial Reporting
d. Departmental Financial Reporting

10. PAS 34 provides for the preparation of interim financial reports. Which of the following
statements concerning interim financial reporting is incorrect?
a. Interim financial reports may be presented monthly, quarterly or semiannually.
b. Publicly traded entities are encouraged to provide interim financial reports
semi-annually and such reports are to be made available not later than 60 days after the
end of the interim period.
c. PAS 34 mandates which entities are required to publish interim financial reports, how
frequently, or how soon after the end of an interim period.
d. The most common interim financial report is the quarterly financial report.
11. Which of the following statements concerning the two views of interim financial reporting
is/are correct?
a. “Independent view” provides that each interim period is an integral part of the annual
accounting period.
b. “Integral view” also known as “discrete view” provides that each interim period is a
basic accounting period and the results of operations should be determined in essentially
the same way as if the interim period was an accounting period.
c. Both A and B
d. Neither A nor B

12. Annual operating expenses are estimated and then allocated to the interim periods based on
forecasted revenue or sales volume. In other words, costs incurred which clearly benefit the
entire year are allocated to the interim period benefited. These statements pertain to what view of
interim financial reporting?
a. Integral view
b. Independent view
c. Discrete view
d. Side view

13. Annual operating expenses are recognized in the interim period in which they are incurred,
irrespective of the number of interim periods benefited. This statement pertains to what view of
interim financial reporting?
a. Integral view
b. Independent view
c. Side view
d. Front view

14. What view of interim financial reporting is essentially adopted by the PAS 34?
a. Integral view
b. Independent view
c. Mix of integral and independent view
d. No view at all

15. For interim financial reporting, a company's income tax provision for the second quarter of
20x1 should be determined using the
a. Effective tax rate expected to be applicable for the full year of 20x1 as estimated at the
end of the first quarter of 20x1.
b. Best estimate of the weighted average annual income tax rate expected for the full
financial year of 20x1.
c. Effective tax rate expected to be applicable for the second quarter of 20x1.
d. Statutory tax rate for 20x1.
16. An inventory loss from a market price decline occurred in the first quarter, and the decline
was not expected to reverse during the fiscal year. However, in the third quarter the
inventory’s market price recovery exceeded the market decline that occurred in the first
quarter. For interim financial reporting, the peso amount of net inventory should
a. Decrease in the first quarter by the amount of the market price decline and increase in the
third quarter by the amount of the decrease in the first quarter.
b. Decrease in the first quarter by the amount of the market price decline and increase in the
third quarter by the amount of the market price recovery.
c. Decrease in the first quarter by the amount of the market price decline and not be affected
in the third quarter.
d. Not be affected in either the first quarter or the third quarter.

17. The cost of inventories of INTERDICT FORBID Co. exceeds their net realizable value as of
the end of the second quarter. INTERDICT believes that market prices will return to their
previous levels by the end of the year. At the end of the year, the decline in the value of the
inventories had not reversed, but market prices did not decline further. When should the loss
be reported in INTERDICT’s interim income statements?
a. Equally over the 2​nd​, 3​rd​, and 4​th​ quarters
b. In the 2​nd​ and 4​th​ quarters only
c. In the annual financial statements only
d. In the 2​nd​ quarter only

18. Conceptually, interim financial statements can be described as emphasizing

a. Timeliness over reliability. c. Relevance over comparability.

b. Reliability over relevance. d. Comparability over neutrality.

19. In addition to the other information required for non-highly seasonal businesses, an entity
whose business is highly seasonal is encouraged under PAS 34 to present
a. financial information for the twelve months ending on the interim reporting date and
comparative information for the prior twelve-month period
b. financial information for the twelve months ending on the interim reporting date and
comparable information for the latest annual financial reporting period.
c. financial information for the twelve months ending on the interim reporting date and no
comparative information.
d. financial information for the thirteen months ending on the interim reporting date and
comparable information for the thirteen-month period of the immediately preceding
financial year
20. Which of the following statements is incorrect?
a. An entity may present complete set of financial statements in its interim financial
reporting.
b. The results for each interim period should be based on the accounting principles and
practices used by an entity in the preparation of its latest annual financial statements
unless a change in an accounting practice or policy has been adopted in the current year.
 c. PAS 34 requires that an entity apply the same criteria for recognizing and measuring a
provision at an interim date as it would at the end of its financial year. The existence or
non-existence of an obligation to transfer benefits is not a function of the length of the
reporting period. It is a question of fact.
d. For interim financial reporting, an inventory loss from a market decline in the second
quarter that is expected to be restored in the fiscal year should be recognized as a loss
proportionately in each of the first, second, third and fourth quarters.

Problems

1. C
Solution:
Unadjusted profit before tax 1,500,000
Write-down of inventory (200,000 – 120,000) (80,000)
Impairment of asset (350,000 – 210,000) (140,000)
Unrealized gain (250,000 – 200,000) 50,000
Depreciation (600,000 x 1/4) (150,000)
Employee benefits (440,000 x 1/4) (110,000)
Adjusted profit before tax 1,070,000

2. D
Solution:
4,000,000
a. Sales
(1,800,000)
b. Cost of sales
2,200,000
Gross income
(200,000)
c. Commission (5% x 4,000,000)
(40,000)
d. Bad debts (60,000 - 20,000)
(240,000)
e. Depreciation (4,800,000 ÷ 5) x 3/12
(40,000)
f. Insurance (160,000 x 3/12)
(26,000)
g. Property tax (104,000 x 3/12)
(200,000)
h. Advertising costs
(92,000)
i. Staff bonuses (368,000 x 3/12)
(120,000)
k. Loss on sale
(48,000)
l. Repairs
 (68,000)
n. Rent (20,000 x 3) + [(4,000,000 – 3,600,000) x 2%]
(480,000)
p. Other operating expenses
646,000
Profit before bonus to key personnel
(64,600)
j. Bonus to key personnel (646,000 x 10%)
581,400
Profit for the first quarter

3. D (Refer to solutions below)

4. A (Refer to solutions below)
Solutions:
1st quarter 2nd quarter
3,520,000 3,680,000
Unadjusted profit before tax
(96,000) -
Unfavorable variance
- (120,000)
Advertisement cost (360,000 x 1/3)
(400,000) 480,000​a
Unrealized (loss) gain on investment
(40,000) (48,000)
Research and development expense
(40,000)​b 60,000​c
Foreign exchange (loss) gain
(32,000) -
Impairment loss (200,000 – 192,000)
2,912,000 4,052,000
Adjusted profit before tax
a​
(400,000 recovery + 80,000 excess)
b​
(40 – 30) x $4,000 = (40,000) loss on decrease in exchange rates
c​
​(45 – 30) x $4,000 = 60,000 gain on increase in exchange rates

5. B
6. A
Solutions:
First quarter Second quarter
a. Inventory write-down (400,000)
Reversal of write-down 400,000
b. Warranty expense (200,000) (680,000)​a
c. Bad debt expense (80,000) (56,000)​b
Net effect on profit or loss (680,000) (336,000)

a​
Total warranty expense – 1​st​ and 2​nd​ qtrs. [(4M + 4.8M) x 10%] 880,000
Warranty expense recognized in 1​st​ quarter (4M x 5%) (200,000)
Warranty expense – 2​nd​ quarter 680,000
 b​
​ Allowance for doubtful accounts
20,000 1/1/20x1
Write-offs 48,000 12,000 Recoveries
80,000 Bad debt expense - 1st quarter (1M x 2%)
56,000 Bad debt expense - 2nd quarter ​(squeeze)
6/30/20x1 120,000

7. B [​tax on first 800K profit: ​(800,000 x 20%) + ​tax on excess profit: ​((400,000 x 4) –
800,000) x 30%] ÷ ​total taxable profit ​(400,000 x 4) = ​25%
8. B (400,000 x 25%) = ​100,000
9. B (400,000 x 25%) = ​100,000
10. D [(​tax on 1​st​, 2​nd​ ​and ​3rd
​ ​quarters’ profits: ​(40K + 40K + 60K) x 30%) + ​tax on the 4​th
quarter’s profit: ​(60K x 40%)] ÷ ​total taxable profit ​(40K + 40K + 60K + 60K) = ​33%
11. A (40,000 x 33%) = ​13,200
12. C (60,000 x 33%) = ​19,800
13. A (60,000 ​loss x​ 30%) = ​(18,000) income tax benefit
14. B (60,000 ​profit x​ 30%) = ​18,000 income tax expense
15. A (80,000 x 30% ave. tax rate in 20x1) = ​24,000
16. C (80,000 x 40% ave. tax rate in 20x2) = ​32,000
17. B (40,000 x 4) – 40,000 carryforward = 120,000 total annual taxable profit x 40% = 48,000
total annual income tax expense ÷ ​ ​total taxable profit excluding carryforward (​ 40,000 x 4) =
30% adjusted weighted average income tax rate.​
(40,000 profit in 1​st​ qtr. x 30% adjusted ​ave. tax rate)​ = ​12,000
18. B (40,000 profit in 3​rd​ qtr. x 30% adjusted ​ave. tax rate)​ = ​12,000
19. B (40,000 + 40,000 + 60,000 + 60,000) – 80,000 carryforward = 120,000 total annual taxable
profit x 40% = 48,000 ​total annual income tax expense ​÷ ​total taxable profit excluding
carryforward (​ 40,000 + 40,000 + 60,000 + 60,000) = ​24% adjusted weighted average
income tax rate​.
(40,000 profit in 1​st​ qtr. x 24% adjusted ​ave. tax rate)​ = ​9,600
20. C (60,000 profit in 3​rd​ qtr. x 24% adjusted ​ave. tax rate)​ = ​14,400