Reference no: EM132944483

Questions -

Q1. On January 1, 2018, Karen Company decided to sell a machinery with a cost of Php 1,200,000 and an accumulated depreciation of Php 480,000. Depreciation of Php 10,000 per month has been provided by the company since it was acquired. The machinery will continue to be operated until sold. The company undertook all the necessary actions to be able to classify the asset as held for sale. On the same date, the fair value of the asset amounted to Php 620,000 while the cost to sell totals Php 20,000. On February 28, 2018, the plant had not been sold but there has been objective evidence that the fair value went up to Php 810,000. On July 1, 2018, the company sold the machinery for Php 800,000 after incurring selling cost of Php 50,000.

Required: Based on the above, answer the following:

1. How much is the impairment loss to be recognized on January 1, 2018

2. How much is the depreciation expense in 2018

3. How much is the gain to be recognize in profit or loss in 2018 as a result of increase in the fair value of the asset

4. How much is the net gain (loss) on sale of the assets in 2018?

5. Assume instead that on the date of reclassification, the fair value less costs to sell amounted to Php 800,000 how much is the impairment loss to be recognized in 2018?

Q2. On January 1, 2018, Karen Company issued a 3-year bonds with a face value of Php 3,000,000 for Php 2,850,756. The bonds carry an interest rate of 8% per year payable annually on December 31. On the date of issuance, the company incurred and paid commission to underwriters of Php 15,000. The bonds are to be appropriately classified as financial liabilities at fair value through profit or loss. On December 31, 2018, the bonds were qouted at 103%. Assume that there are no changes due to credit risk. On January 1, 2019, the bonds were retired at 104.

Required: Based on the above data, answer the following:

1. How much is the interest expense for 2018?

2. How much is the unrealized loss (gain) in 2018 to be recognized in the profit or loss?

3. How much is the realized loss (gain) on derecognition in 2019 to be recognized in profit or loss?

Q3. Due to extreme financial difficulties, Karen Company has negotiated a restructuring of its 10% Php 5,000,000 note payable due on December 31, 2018. The unpaid interest on the note on such date is Php 500,000. The creditor has agreed to reduce the face value to Php 4,000,000, forgive the unpaid interest and reduced the interest rate to 8% and extend the due date 3 year from December 31, 2018. The present value of 1 at 10% for 3 periods is 0.75 ad the present value of an ordinary annuity of 1 at 10% for 3 periods is 2.49.

Required: Based on the above, answer the following:

1. What is the gain on extinguishment of debt to be recognize by Karen Company on December 31, 2018?

2. What is the amount of interest expense to be recognize by Karen Company for the year 2018?