ILLUSTRATIVE EXAMPLES
Revaluation and Impairment
1. Pinnacle Company provided the following data on the date of revaluation:
Building, at original cost P5,000,000
Building, at fair value 6,000,000
Accumulated depreciation 1,250,000
(cost 40-year life and 10 years expired)
Requirements:
1. Prepare journal entries for the current year under the proportional approach.
2. Prepare journal entries for the current year under the elimination approach.
2. Mr. Accounting Company acquired a building on January 1, 2025, at a cost of P20,000,000. The
building had an estimated useful life of 6 years and residual value of P2,000,000.
The building was revalued on January 1, 2028 and the revaluation revealed replacement cost of
P30,000,000, residual value of P4,000,000 and revised useful life of 8 years.
Requirements:
1. Prepare journal entry to record the revaluation.
2. Prepare journal entry to record annual depreciation for 2028.
3. Prepare journal entry to record the piecemeal realization of the revaluation surplus.
3. On December 31, 2025, BSA Company determines that its building is impaired. The following
information are gathered:
Building P1,000,000
Accumulated depreciation 300,000
Fair value less cost of disposal 600,000
Value in use 580,000
Requirement: Compute for the impairment loss (if any) and provide the journal entry.
4. Pinnacle Company determined that due to obsolescence an equipment with an original cost of
P4,500,000 and accumulated depreciation on January 1, 2025 of P2,100,000 had suffered a
permanent impairment and as a result should have a recoverable amount of only P1,500,000 as of
the beginning of the year.
In addition, the remaining useful life of the equipment was reduced from 8 to 3 years.
Requirements:
1. Prepare journal entry to record the impairment on January 1, 2025.
2. Prepare journal entry to record the depreciation for 2025.
3. Determine the carrying amount of the equipment on December 31, 2025.
5. On January 1, 2025, ABC Company owned the following machine with the following cost and
accumulated depreciation:
Machinery P90,000,000
Accumulated depreciation 25,000,000
The machine has an average remaining useful life of 4 years. The fair value less cost of disposal of this
machine in an active market is determined to be P48,000,000. Based on supportable and reasonable
assumptions, the financial forecast for this machine reveals the following cash inflows and cash
outflows for the next four years:
Cash inflows Cash outflows
2025 P30,000,000 P12,000,000
2026 32,500,000 17,500,000
2027 27,500,000 12,500,000
2028 16,000,000 4,000,000
It is believed that a discount rate of 8% is reflective of time value of money. The table of present
value shows the following present value of 1 at 8%
Period Present value of 1
1 .930
2 .857
3 .794
4 .735
Requirements:
1. Determine the value in use.
2. Determine the recoverable amount.
3. Prepare journal entry to record the impairment loss, if any.
4. Prepare journal entry to record the depreciation for the current year.
6. [Impairment of revalued asset] The land of CPA Company with historical cost of P8,000,000 has fair
values of P12,000,000 and P7,000,000 on December 31, 2025 and December 31, 2026, respectively.
Requirement: Provide the journal entries on December 31, 2025 and 2026.
7. [Reversal of impairment – non-depreciable asset] On December 31, 2025, the land of CPA Company
with an original cost of P10,000,000 has been determined to have a fair value of P7,000,000. This was
the first revaluation made on the land since it was purchased 2 years ago. On December 2026, the
building has been determined to have a fair value of P12,000,000.
Requirement: Provide the journal entries on December 31, 2025 and 2026.
8. [Reversal of impairment – depreciable asset] Mr. Accounting Company reported an impairment loss
of P2,000,000 in the income statement for the year ended December 31, 2025. This loss was related
to a long-lived asset acquired on January 1, 2024 with cost of P10,000,000, useful life of 10 years and
no residual value.
On December 31, 2025, the entity reported the long-lived asset at P6,000,000 which is the fair value
less cost of disposal on such date.
On December 31, 2026, the entity determined that the fair value less cost of disposal of the impaired
long-lived asset had increased to P7,500,000. The straight line depreciation is recorded for the
impairment asset.
Requirements:
a. Prepare all journal entries for 2025 and 2026 using Cost Model.
b. Prepare the journal entry for the reversal of impairment using Revaluation Model.
9. [Cash generating unit] At the beginning of current year, XYZ Company has an operating division
whose major business is manufacturing of toys. The toys division is regarded as a cash generating
unit. There is a declining interest in toys because of the aggressive marketing of computer games.
The management measured the value in use of the toys division at the current-year end at
P3,600,000. The carrying amounts of the assets of the toys division were:
Building P2,000,000
Equipment 1,500,000
Trademark 1,000,000
Goodwill 500,000
Requirements:
1. Determine the amount of impairment loss.
2. Allocate the impairment loss to the assets of the cash generating unit.
3. Prepare journal entry to record the impairment loss.
10. ABC Company has determined that the furniture division is a cash generating unit. The entity
calculated the value in use of the division to be P11,000,000. The entity has also determined that the
fair value less cost of disposal of the building is P6,500,000. The carrying amounts of the assets are:
Building P8,000,000
Equipment 4,000,000
Machinery 4,000,000
Requirements:
1. Determine the impairment loss.
2. Allocate the impairment loss to the assets of the cash generating unit.
3. Prepare journal entry to record the impairment loss.
