College of Accounting Education
3/F F. Facundo Hall, B & E Bldg.
Matina, Davao City Philippines
Phone No.: (082) 305-0645
Applied Auditing
Quizzer 18
Revaluation and Impairment
Problem 1
William Company owned a building on January 1, 2013 with historical cost of P40,000,000. The property
is depreciated over 40 years on a straight line basis with no residual value. The entity adopted the
revaluation model of measuring property, plant and equipment. The building has so far been revalued
at fair value as follows:
January 1, 2014 46,800,000
January 1, 2016 45,500,000
January 1, 2018 30,000,000
January 1, 2020 50,000,000
Questions:
1. What is the revaluation surplus on December 31, 2014?
2. What is the revaluation surplus on December 31, 2015?
3. What is the Depreciation of the building on December 31, 2016?
4. How much is the impairment loss at January 1, 2018, if any?
5. How much is the gain on recovery of impairment at January 1, 2020, if any?
Problem 2
Honesto Company has one division that performs machinery operations on parts that are sold to
contractors. A group of machines have an aggregate cost and accumulated depreciation on January 1,
2018 as follows:
Machinery 90,000,000
Accumulated depreciation 25,000,000
Carrying amount 65,000,000
The machines have an average remaining life of 4 years and it has been determined that this group of
machines 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 P48,000,000.
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
2018 30,000,000 15,000,000
2019 42,500,000 17,500,000
2020 27,500,000 17,500,000
2021 18,000,000 4,000,000
It is believed that a discount rate of 8% is reflective of time value of money and the risks specific to
the group of machines.
On December 31, 2019, the fair market value of the machinery totaled P65 million pesos. The pre-
impairment depreciation of the machinery amounted to P5,000,000.
Questions:
1. How much is the recoverable cost the machinery on January 1, 2018?
2. How much is the depreciation of the machinery on December 31, 2018?
3. How much is the carrying value of the machinery had no impairment been in the records on
December 31, 2019?
4. How much is the gain on recovery of impairment, if any, on December 31, 2019?
5. How much is the depreciation of the machinery on December 31, 2019?
College of Accounting Education
3/F F. Facundo Hall, B & E Bldg.
Matina, Davao City Philippines
Phone No.: (082) 305-0645
Problem 3
Mark Company ha the following information on January 1, 2010 related to its property, plant, and
equipment:
Land 30,000,000
Building 300,000,000
Accumulated Depreciation—building (37,500,000)
Machinery (2 machines) 400,000,000
Accumulated depreciation—machinery (100,000,000)
Carrying Amount 592,500,000
There were no additions nor disposals during 2010. Depreciation is computed using straight line over
20 years for building and 10 years for machinery. On June 30, 2010, all the property, plant, and
equipment were revalued as follows:
Replacement Cost Sound Value
Land 40,000,000 40,000,000
Building 500,000,000 425,000,000
Machinery 650,000,000 455,000,000
On June 20, 2011, building was revalued at 300,000,000, its fair market value at that time. one of the
machines was sold on December 31, 2011 at P250,000,000
Questions:
1. What is the revaluation surplus on June 30, 2010?
2. What is the total depreciation for 2010?
3. What is the revaluation surplus on December 31, 2010?
4. What is the impairment loss on December 31, 2011?
5. What is the revaluation surplus on December 31, 2011?
6. Gain on sale on December 31, 2011?
