Financial Accounting & Reporting 3

BS Accountancy
Holy Trinity University
(S.Y. 2019-20 1st Sem)

Quiz 2

Name:

1. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale
and
I. Represents a separate major line of business or geographical area of operations.
II. Is part of a single co-ordinated plan to dispose od separate major line of business or
geographical area of operations.
III. Is a subsidiary acquired exclusively with a view to resale.

a. I only
b. I and II only
c. I and III only
d. I, II, and III

2. A componet of an entity is classified as discontinued operation at the date

I. When the entity has actually disposed of the operation.
II. When the operation meets the criteria to be classified as "held for sale"

a. I only
b. II only
c. Either I and II
d. Neither I or II

3. What is the presentation of the results from discontinued operation in the income statement?
a. The entity shall disclose a single amount on the face of the income statement below the income
from continuing operation.
b. The amount from discontinued operation shall be broken down over each category of revenue and
expense.
c. Discontinued operation shall be shown as movement on retained earnings.
d. Discontinued operation shall be shown as a line item after gross profit with the taxation being
shown as part of income tax expense.

4. Which of the following criteria does not have to be met in order for an operation to be classified as discontinued?
a. The operation shall represent a separate major line of business or geographical area.

b. The operation is part of a single plan to dispose of a separate major line of business or geographical area.
 b. The operation is part of a single plan to dispose of a separate major line of business or geographical area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months of the year-end.

5. Which of the following statements in relation to a discontinued operation is true?

I. When the discontinued criteria are met after the end of the reporting period, the operation shall
retrospectively be separately presented as discontinued operation.
II. The net cash flows attributable to the operating,investing, and financing activities of a discontinued operation
shall be separately disclosed.
6. PFRS requires that a single amount be disclosed within the income statement for
a. The post-tax profit or loss on discontinued operation and the pre-tax gain or loss on the disposal of the
discontinued operation assets.
b. The pre-tax profit or loss on discontinued operation and the post-tax gain or loss on the disposal of the
discontinued operation assets.
c. The pre-tax profit or loss on discontinued operation and the pre-tax gain or loss on the disposal of the
discontinued operation assets.
b. The post-tax profit or loss on discontinued operation and the post-tax gain or loss on the disposal of the
discontinued operation assets.

7. When an entity discontinues an operation and disposes of the discontnued operation, the transaction should be
included in the income statement as gain or loss on disposal reported as
a. A prior period adjustment
b. Other income or expense
c. An amount after continuing operations and before net income
d. A bulk sale of plant assets included in income from continuing operations

8. Sky Company reported the following information for the current year:

Income from continuing operations 450,000

Net income 405,000
Distribution and administrative expenses 2,250,000
Income before income tax 900,000

What amount should be reported as income or loss from discontinued operation?

a. 450,000 income
b. 360,000 income
c. 90,000 loss
d. 45,000 loss

9. Booker Company committed to sell its comic book division, a component of business, on September
1, 2019. The carrying amount of the division was P4,000,000 and the fair value less cost of disposal P3,500,000. The
disposal date is expected to be June 1, 2020. The division reported an operating loss of P200,000 for the year ended
December 31, 2019. Ignoring income tax, what amount should be reported as loss from discontinued operation in 2019?

a. 500,000
b. 200,000
c. 700,000
d. 0

10. Purple Company has correctly classified its packaging operation as a disposal group held for sale and as
discontinued operation. For the year ended December 31, 2019, this disposal group incurred trading loss after tax of
P20,000,000 and the loss on remeasuring it to fair value less cost of disposal was P15,000,000. What total amount of
the disposal group's losses should be included in profit or loss for the year ended December 31, 2020?
 a. 35,000,000
b. 20,000,000
c. 15,000,000
d. 0

11. It is a group of assets to be disposed of by sale or otherwise, together as group in a single transaction and liabilities
directly associated with those assets that will be transferred in the transaction.
a. Disposal group
b. Discontinued operation
c. Noncurrent asset
d. Cash generating unit
12. An entity shall classify a noncurrent asset or disposal group as "held for sale" when
a. The carrying amount of the asset or disposal group will be recovered through a sale transaction.
b. The carrying amount of the asset or disposal group will be recovered through continuing use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

13. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
a. Carrying amount
b. Fair value less cost of disposal
c. Lower of carrying amount and fair value less cost of disposal
d. Higher of carrying amount and fair value less cost of disposal

14. If the fair value less cost of disposal is lower than the carrying amount of a noncurrent asset classified as held for
sale, the difference is
a. Not accounted for
b. Accounted for as an impairment loss
c. Charged to depreciation
d. Debited to retained earnings

15. What is the treatment of any gain on a subsequent increase in the fair value less cost of disposal of noncurrent asset
classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized.

c. The gain shall be recognized but not in excess of the cumulative impairment loss previously recognized.
d. The gain shall be recognized but only in retained earnings

16. Noncurrent asset classified as held for sale shall be presented in the statement of financial position as
a. Current asset
b. Other noncurrent asset
c. Nonccurrent investment
d. PPE

17. An abandoned noncurrent asset

a. Shall be classified as held for sale
b. Shall not be classified as held for sale because its carrying amount will be recovered principally through
continuing use.
c. Shall be accounted for as a discontinued operation
d. Shall be treated as a loss

Clara Company purchased equipment for P5,000,000 on January 1, 2019 with a useful life of 10 years and no residual
value. On December 31, 2013, the entity classified the asset as held for sale. The fair value of the equipment on
December 31, 2019 is P4.2 million and the cost of disposal is P50,000. On December 31, 2020, the fair value of the
equipment is P3.5 million and the cost of disposal is P100,000. On December 31, 2020, the entity believed that the
criteria for classification as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it.
Clara Company purchased equipment for P5,000,000 on January 1, 2019 with a useful life of 10 years and no residual
value. On December 31, 2013, the entity classified the asset as held for sale. The fair value of the equipment on
December 31, 2019 is P4.2 million and the cost of disposal is P50,000. On December 31, 2020, the fair value of the
equipment is P3.5 million and the cost of disposal is P100,000. On December 31, 2020, the entity believed that the
criteria for classification as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it.

18. What is the impairment loss to be recognized on December 31, 2019?

a. 350,000
b. 300,000
c. 800,000
d. 750,000
19. What is the measurement of the equipment that ceases to be held for sale on December 31, 2020?
a. 4,000,000
b. 3,500,000
c. 3,400,000
d. 4,150,000

20. What amount should be recognized as gain or loss as result of the reclassification in 2020?
a. 750,000 gain
b. 750,000 loss
c. 150,000 gain
d. 150,000 loss

Bell Company reported the following differences in the statement of financial position on December 31, 2019 and 2018.
Increase (Decrease)
Cash & cash equivalents 270,000.00
ST investments 200,000.00
A/R, net of allowance - 20,000.00
Inventory 100,000.00
Noncurrent Investments - 100,000.00
PPE 700,000.00
Accu Depreciation - 50,000.00
1,100,000.00

A/P - 5,000.00
Dividends payable 160,000.00
ST debt 300,000.00
LT debt 130,000.00
Share capital, P10 par 150,000.00
Share premium 75,000.00
RE 290,000.00
1,100,000.00

Additional info:
1. Net income was P790,000.
2. Cash dividends of P500,000 were declared.
3. Equipment costing P600,000 & having a carrying value of P350,000 was sold for P350,000.
4. A noncurrent investment was sold for P90,000.

For 10 points, please prepare the statement of cash flows for the year ended December 31, 2019.
lassified as held for sale

fied as discontinued?

geographical area.
geographical area.

eration shall

a discontinued operation
 disposal of the

disposal of the

disposal of the

e disposal of the

nsaction should be

September
osal P3,500,000. The
0 for the year ended
tinued operation in 2019?

r sale and as
ading loss after tax of
What total amount of
2020?
ansaction and liabilities
 classified as held for

posal of noncurrent asset

usly recognized.

ncipally through

years and no residual

e equipment on
he fair value of the
ty believed that the
ot to sell the asset but to
mber 31, 2019 and 2018.