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Monday, November 15, 2010

Valix Finacc vol 1 Problem 19-25

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 19 Problem 19-25



1.  Carrying amount                                                                                                   16,000,000
     Value in use                                                                                                           11,000,000
     Impairment loss                                                                                                       5,000,000

2.  Allocation of impairment loss

    Building (8/16 x 5,000,000)                                                                                        2,500,000
    Equipment (4/16 x 5,000,000)                                                                                   1,250,000
    Inventory (4/16 x 5,000,000)                                                                          1,250,000
                                                                                                                                    5,000,000
                                                                                     
Observe that after allocating the P2,500,000 loss to the building, the carrying amount of the building would be P5,500,000 which is lower than its fair value of P6,500,000.

Accordingly, only P1,500,000 loss is allocated to the building and the balance of P1,000,000 is reallocated to the equipment and inventory prorata.



                                                                                Building           Equipment       Inventory
Allocated loss                                                          2,500,000          1,250,000          1,250,000
Reallocated loss                                                     (1,000,000)        
    (4/8 x 1,000,000)                                                                              500,000
    (4/8 x 1,000,000)                                                   _________        _________           500,000
Impairment loss                                                       1,500,000          1,750,000          1,750,000

3.  Impairment loss                                                                              5,000,000
            Accumulated depreciation – building                                                            1,500,000
            Accumulated depreciation – equipment                                                       1,750,000
            Inventory                                                                                                         1,750,000 

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