REVALUATION AND IMPAIRMENT

1. Lian Company acquired a building on January 1, 2001 at a cost of P50,000,000. The

building has an estimated life of 10 years and residual value of P5,000,000. The
building was revalued on January 1, 2005 and the revaluation revealed replacement
cost of P80,000,000, residual value of P2,000,000 and revised life of 12 years. What is
the revaluation surplus on December 31, 2005?
a. 30,000,000
b. 26,250,000
c. 16,800,000
d. 14,700,000

2. On January 1, 2005, the historical balances of the land and building of Lipa Company
are:
Cost Accumulated depreciation
Land 50,000,000
Building 300,000,000 90,000,000

The land and building were appraised on same date and the revaluation revealed the
following:
Sound value
Land 80,000,000
Building 350,000,000
There were no additions or disposals during 2005. Depreciation is computed on the
straight line. The estimated life of the building is 20 years. The depreciation of the
building for the year ended December 31, 2005 should be
a. 25,000,000
b. 10,000,000
c. 15,000,000
d. 17,500,000

3. Capiz Company has the following information on January 1, 2005 relating to its land
and building.
Land 20,000,000
Building 450,000,000
Accumulated depreciation 75,000,000
There were no additions or disposals during 2005. Depreciation is computed using
straight line over 15 years for building. On June 30, 2005, the land and building were
revalued as follows:
Replacement cost Sound value
Land 35,000,000 35,000,000
Building 600,000,000 480,000,000

1. What is the depreciation of the building for 2005?

a. 30,000,000
b. 35,000,000
c. 40,000,000
d. 32,000,000

2. What is the revaluation surplus on June 30, 2005?

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a. 135,000,000
b. 125,000,000
c. 120,000,000
d. 160,000,000

3. What is the revaluation surplus on December 31, 2005?

a. 125,000,000
b. 130,000,000
c. 123,750,000
d. 115,000,000

4. During December 2005, Talisay Company determined that there had been a significant
decrease in market value of its equipment. At December 31, 2005, Talisay compiled
the following information concerning the equipment:
Original cost 20,000,000
Accumulated depreciation 12,000,000
Expected undiscounted net future cash inflows from the
continued use and eventual disposal 7,000,000
Expected discounted net future cash inflows from the
continued use and eventual disposal 5,000,000
Fair value less cost to sell 6,500,000
What is the impairment loss that should be reported in the 2005 income statement?
a. 1,000,000
b. 2,000,000
c. 1,500,000
d. 0

5. Tanauan Company has one division that performs machining operations on parts that
are sold to contractors. A group of machines have an aggregate cost and accumulated
depreciation on December 31, 2005 as follows:
Machinery 90,000,000
Accumulated depreciation 30,000,000
The machines have an average remaining life of 4 years and it has been determined
that this group of machinery constitutes a cash generating unit. The fair value less cost
to sell of this group of machines in an active market is determined to be P45,000,000.
Based on supportable and reasonable assumptions, the financial forecast for this group
of machines reveals the following cash inflows and cash outflows for the next four
years:
Cash inflows Cash outflows
2006 30,000,000 12,000,000
2007 32,000,000 17,000,000
2008 26,000,000 14,000,000
2009 16,000,000 6,000,000
It is believed that a discount rate of 8% is reflective of time value of money. The table of
present value shows that the present value of 1 at 8% is as follows:
Period Present value of 1
1 .93
2 .86
3 .79
4 .74

Tanauan Company should recognize an impairment loss in 2005 at

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a. 13,480,000
b. 15,000,000
c. 5,000,000
d. 0

6. Odiongan Company acquired a machine for P6,400,000 on August 31, 2002. The
machine has a 5-year life, a P1,000,000 salvage value, and was depreciated using the
straight line method. On May 31, 2005, a test for recoverability reveals that the
expected net future undiscounted cash inflows related to the continued use and
eventual disposal of the machine total P3,000,000. The machine’s fair value on May
31, 2005 is P2,700,000 with no residual value. Assuming a loss on impairment is
recognized on May 31, 2005, what is Odiongan’s depreciation for June 2005?
a. 127,040
b. 100,000
c. 111,110
d. 45,000

7. Lobo Company reported an impairment loss of P4,000,000 in its income statement for
the year 2004. This loss was related to an item of property, plant and equipment which
was acquired on January 1, 2003 with cost of P25,000,000, useful life of 10 years and
no residual value. On December 31, 2004 balance sheet, Lobo reported this asset at
P16,000,000 which is the fair value on such date. On December 31, 2005, Lobo
determined that the fair value of its impaired asset had increased to P19,000,000. The
straight line method is used in recording depreciation of this asset. What amount of
gain on impairment recovery should Lobo report in its 2005 income statement?
a. 5,000,000
b. 3,500,000
c. 1,500,000
d. 0

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