CLASSROOM EXERCISES ON NON-CURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS 1.

On March 31, 2012, Jaro Company has a building with a cost of P5,500,000 and accumulated depreciation of P4,000,000. The company commits to a plan to sell the building by January 7, 2013 and accordingly reclassified the building as held for sale. On March 31, 2012, the building has an estimated selling price of P1,000,000, and estimated cost to sell of P150,000. On December 31, 2012, the estimated selling price of the building has increased to P1,500,000, with estimated selling costs at P250,000. Prepare the jo rna! entr"e# to re$or% &a' the "n"t"a! $!a##"("$at"on o( the ) "!%"n* a# he!% (or #a!e on Mar$h 31, 2012, an% &)' any a%j #tment ne$e##ary on De$em)er 31, 2012. 2. On pril 1, 2012, +orona%a! Company has machinery with a cost of P2,500,000 and accumulated depreciation of P1,900,000. On this date, the company decided to sell the machine within one year and reclassifies the machinery as held for sale. s of pril 1, 2012, the machine had an estimated selling price of P750,000 and remaining useful life of 2 years. !t is estimated that selling costs associated with the disposal of the machine will be P50,000. On December 31, 2012, the estimated selling price of the machine by P250,000 while the estimated selling costs increased to P75,000. a. Ma,e the entry to re$or% the "n"t"a! $!a##"("$at"on o( the ma$h"ne a# he!% (or #a!e on Apr"! 1, 2012. b. Determ"ne the $arry"n* -a! e o( the Machinery Held for Sale on De$em)er 31, 2012. 3. La* na Company is planning to dispose of a collection of assets. The entity designates these assets as a disposal group. The carrying amount of these assets immediately before classification as held for sale was P20 million. "pon being classified as held for sale, the assets were re#alued to P17 million. The entity feels that it would cost P1.5 million to sell the disposal group. .hat /o !% )e the $arry"n* amo nt o( the %"#po#a! *ro p "n the ent"ty0# #tatement o( ("nan$"a! po#"t"on a(ter "t# $!a##"("$at"on a# he!% (or #a!e1 4. Mar"n% 2 e Company is planning to dispose of a collection of assets. The entity designates these assets as a disposal group and the carrying amount of these assets immediately before classification as held for sale was P7,500,000.

"pon being classified as held for sale, the assets were re#alued at P4,800,000. The fair #alue less cost to sell of the disposal group is P2,740,000 at current year$end. Ho/ /o !% the re% $t"on "n the -a! e o( the a##et# on $!a##"("$at"on a# he!% (or #a!e )e treate% "n the ("nan$"a! #tatement#1 5. Determine if the following acti#ities are discontinued operations. ll companies ha#e their financial year%end at December 31. &'plain your answers. a. Spr"n*t"me Company has three product groups which are reported as separate segments( baby)s clothes, baby dolls, and office e*uipment. !n June 2012, management decided to dispose of its baby doll segment. !n mid%+eptember, management announced its plan to dispose of the baby doll segment, which has become unprofitable and costly to maintain. )3 S mmer Company has four segments( soft drin,s, ice cream, real estate, and insurance. Management has decided to discontinue producing ice cream containing nuts. !nstead, it will add ice cream containing fruits to its assortment. c. The processed meat di#ision, one of the segments of Fa!! Corporat"on4 has been operating at a loss since 2009. !n 2012, the board of directors has been discussing during se#eral of its meetings whether to dispose of this segment. The board cannot agree whether to continue the segment)s acti#ities. !n its October 2012 board meeting, the board members finally agreed to dispose of at least some of the facilities within the processed meat di#ision in the remaining *uarter of the year. !n 2012, some other facilities within the segment would probably be disposed of.

d. !n +eptember 2012, the management of ."nter Company decided to close one of its three facilities in the "nited +tates as it is much cheaper to produce its products in the Philippines. The facilities are included in the cosmetics segment together with the facilities in the "nited +tates, +pain, and the Philippines. Management has already formali-ed the plan and informed its employees of its decision.
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e. Fo r Sea#on# In$3 has four different business segments. One of the segments is producing desiccated coconut candies. The factories where these candies are produced are located in fields where the coconut trees are grown. These are situated in +outhern .u-on. !n /o#ember 2012, management decided to dispose of this segment and wor,ed out a detailed plan for the disposal. Management announced its plan to the press after its January 2013 board meeting. 6. Presented below are the condensed income statements of Na-ota# Corporat"on for the years ended December 01, 2011 and 2012. +ales 3ost of goods sold Gross income Operating e'penses Operating income 4ain on sale of di#ision Income before tax !ncome ta' e'pense (35%) Net "n$ome 2012 P 10,000,000 (6,700,000) 3,300,000 (1,350,000) 1,950,000 400,000 2,350,000 (822,500) P 1,527,500 2011 P 9,800,000 (6,600,000) 3,200,000 (1,300,000) 1,900,000 0 1,900,000 (665,000) P 1,235,000

On October 10, 2012, the firm entered into an agreement to sell the assets of one of its geographical segments. The geographical segment comprises operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes, from the other sections5parts of the company.

The segment was sold on December 31, 2012 for P3,500,000. The boo, #alue of the segment)s assets was P3,100,000. The segment)s contribution to /a#otas) operating income before ta' for each year was as follows( 2012 2011 (P227,500) 162,500

6ased on the abo#e data, calculate the following( a3 )3 !ncome net of ta' from continuing operations in 2011. !ncome net of ta' from continuing operations in 2012.
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c. d. e.

/et income after ta' in 2011. /et income after ta' in 2012. ssume that by December 31, 2012, the segment had not yet been sold but was considered held for sale. The fair #alue of the segment)s asset on December 31 was P3,500,000. 7ow much should be the post$ta' income 8loss9 from discontinued operations for 2012: f. ssume that by December 31, 2012, the segment had not yet been sold but was considered held for sale. The fair #alue of the segment)s assets on December 31, 2012 was P2,500,000. 7ow much should be the post$ta' income 8loss9 from discontinued operations for 2012? 7. O%"on*an Company has four segments( telecommunications, biomedical research, !T consulting, and cars. The car segment is deemed inconsistent with the long$term direction of the company, which is to concentrate on products and ser#ices for the ;new economy<. On +eptember 30, 2012, the board of directors #oted in fa#or of a disposal plan which would either try to sell off the car segment as a whole or, if not successful by the end of 2012, dispose of the assets in the segment in a piecemeal fashion. n announcement of the plan was made the same day. month later the company enters into a legally binding sales agreement with one of the ma=or car producers in the world. The parties e'pect the sale to be completed in >ebruary 2013.

The following information for the car segment is a#ailable for the financial year 2012.
3arrying mount 9/30/12 ?eco#erable mount % 9/30/12 3arrying mount 12/31/12

ssets .iabilities &*uity ?e#enue Operating &'p. >inancial &'p.

P9,000,000 4,000,000 5,000,000

P8,000,000 4,000,000 4,000,000

P8,000,000 4,000,000 4,000,000 5,500,000 2,500,000 500,000

The sales agreement obliges management of Odiongan 3ompany to terminate the employment of certain employees in the car segment. The e'pected termination cost is P750,000. The necessary ad=ustment to the amounts abo#e has not yet been made. Re2 "re%5 s you are aware, information relating to a discontinued operation should be presented separately from continuing operations. 6o #ho !% no/ prepare the "n$ome #tatement (or the $ar #e*ment &the %"#$ont"n e% operat"on' (or year 2012. A## me a $orporate ta7 o( 30%.

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