Reference no: EM132675024

Problem 1: On January 1, 2016, Leto Company purchased a machine for P1,600,000 and established an annual depreciation charge of P200,000 over an eight-year life. During 2019, after issuing the 2018 financial statements, the entity concluded that the machine suffered permanent impairment of the operational value, and P400,000 is reasonable estimate of the amount expected to be recovered through use of the machine for the period January 1, 2019 through December 31, 2023. What should be reported as carrying amount of the machine on December 31, 2019?

Problem 2: Which of the following is CORRECT?

a. An impairment loss is the amount by which the carrying amount of an asset exceeds fair value less cost of disposal
b. The fair value of an asset is the discounted value of future cash flows expected to be derived from the asset.
c. The best evidence of fair value is the quoted price in an active market for similar asset.
d. Cost of disposal does not include cost of removing the asset.
e. All of the above
f. None of the above.

Problem 3: Which of the following is CORRECT?

a. If the fair value less cost of disposal cannot be determined, the recoverable amount is the value in use.
b. If an asset is to be disposed of, the recoverable amount is the value in use or fair value less cost of disposal whichever is higher.
c. Impairment loss for productive asset shall be reported as a change in accounting estimate.
d. Long-lived assets are reviewed for impairment every year at the end of the reporting period.
e. An entity shall test an intangible asset with indefinite useful life for impairment if there is an indication of impairment.
f. All of the above
g. None of the above

Problem 4: Which of the following is INCORRECT?

a. The carrying amount of an asset is relevant in determining the value in use of an asset.
b. The impairment test compares the book value with the lower of fair value less cost of disposal and value in use.
c. A cash generating unit is a group of assets that generate cash inflows from continuing use that are largely independent of the cash flows from other group of assets.
d. The allocation of impairment loss recognized for a CGU is : first, to any goodwill, and the balance all the remaining assets prorata based on carrying amount.
e. All of the above
f. None of the above