Impairment of Assets

Assignment

1. On December 31, 20x1, Roger assessed that its plant with carrying amount of Php 38,000,000 is impaired.
Roger made the following cash flow projections from net revenues to be derived from the plant:

Year Cash flows

20x2 12,000,000
20x3 10,000,000
20x4 9,000,000
20x5 8,000,000

The cash flows are assumed to be made at each year-end. The appropriate discount rate is 12%. The fair
value less costs of disposal of the plant is Php 30,000,000. The plant has a remaining useful life of 25 years
and a residual value of Php 2,000,000. Compute for the impairment loss. You are given an incomplete table
for computation of value-in-use:

The value in use is computed as follows:

Year Cash flows PV of 1 @12% Present value

20x2 n=1 10,714,286
20x3 10,000,000 n=2
20x4 n=3 6,406,022
20x5 8,000,000 n=4
Residual value n=4
Total

2. Roger purchased equipment 8 years ago for Php 1,000,000. The equipment has been depreciated using the
straight-line method with a 20-year useful life and 10% residual value. Roger’s operations have experienced
significant losses for the past 2 years and, as a result, the company has decided that the equipment should
be evaluated for possible impairment. The management of Roger estimates that the equipment has a
remaining useful life of 7 years. Net cash inflow from revenues produced by the equipment is Php 80,000
per year. The fair value of the equipment is Php 390,000. Disposal costs are negligible. The pre-tax discount
rate is 12%.

Compute for the impairment loss.

3. On January 1, 20x1, Roger tested for impairment one of its buildings with carrying amount of
Php 10,000,000. The impairment testing revealed a recoverable amount of Php 8,000,000. The building has
a remaining useful life of 10 years. Roger uses the straight line method of depreciation.

On January 1, 20x3, Roger determined that the recoverable amount of the building is Php 7,000,000. The
building’s remaining useful life as of this date is 10 years.

a. How much is recognized in profit or loss on January 1, 20x3?

b. How much is recognized in other comprehensive income on January 1, 20x3?
c. How much is the depreciation expense in 20x3?

MIAW