Chapter 4

Non-current Assets Held for Sale and Discontinued

Operations

QUIZ 1:

1. If a noncurrent asset is sold after the end of the reporting period but before the financial

statements are authorized for issue, that asset is classified as current asset in the statement of

financial position.

2. PFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies only to

noncurrent assets. Current assets are outside the scope of this standard.

3. According to PFRS 5, a non-current asset (or disposal group) is classified as held for sale if its

carrying amount will be recovered principally through continuing use rather than through a sale

transaction.

4. For purposes of applying the provisions of PFRS 5, an exchange transaction with commercial

substance may be treated as a sale.

5. Noncurrent assets classified as held for sale in accordance with PFRS 5 are measured at fair

value less costs to sell.

6. The assets and liabilities of a disposal group shall be offset and the net amount is presented as

either asset or liability.

7. Investment properties measured under the fair value model are within the scope of PFRS 5.

8. Property, plant and equipment measured under the revaluation model are within the scope of

PFRS 5.

9. “Highly probable” means more likely than not.

10. Meeting the criteria for held for sale classification after the balance sheet date but before the

financial statements are authorized for issue is a non-adjusting event after the reporting period.
ANSWERS TO QUIZ 1:

1. FALSE 6. FALSE

2. TRUE 7. FALSE

3. FALSE 8. TRUE

4. TRUE 9. FALSE

5. FALSE 10. TRUE

QUIZ 2:

1. Non-current assets are presented as current items in the statement of financial position

a. only when they are expected to be sold within 12 months from the end of reporting period.

b. only if they are actually sold after the reporting period but before the date of authorization of

the financial statements for issue.

c. only when they qualify as held for sale assets under PFRS 5.

d. never presented as current items.

2. A noncurrent asset classified as held for sale in accordance with PFRS 5 has not been sold after

a year. The asset shall continue to be presented as held for sale under PFRS 5 if

a. the delay is due to events beyond the entity’s control

b. the entity remains committed to its plan to sell the asset

c. the noncurrent asset is actually sold after the reporting period but before the financial

statements were authorized for issue.

d. a and b

3. Which of the following statements is true regarding the accounting treatment of costs to sell

under PFRS 5?

a. Costs to sell are added to the fair value when determining the measurement basis for an
asset held for sale

b. Costs to sell are never discounted because held for sale assets should be sold within one

year

c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.

d. a and c

4. According to PFRS 5, gains and losses on remeasurement of assets held for sale are

a. recognized in profit or loss

b. recognized in other comprehensive income

c. recognized only for impairment losses

d. not recognized

5. Which of the following is included in profit from continuing operations?

a. extraordinary items c. other comprehensive income

b. discontinued operations d. income tax expense

Use the following information for the next two questions:

VISAGE APPEARANCE Co. is committed to a plan to sell its headquarters building and has initiated

actions to locate a buyer. As of this date, the building has a carrying amount of ₱5,000,000, a fair

value of ₱6,000,000 and estimated costs to sell of ₱200,000.

6. VISAGE Co. has an intention to transfer ownership of a building to a buyer after it vacates the

building. How should VISAGE Co. classify the headquarters building?

a. Included under property, plant and equipment at ₱5,000,000.

b. Included under property, plant and equipment at ₱5,800,000.

c. Classified as held for sale at ₱5,000,000

d. Classified as held for sale at ₱5,800,000

completed. How should VISAGE Co. classify the headquarters building?

a. Included under property, plant and equipment at ₱5,000,000.

b. Included under property, plant and equipment at ₱5,800,000.

c. Classified as held for sale at ₱5,000,000

d. Classified as held for sale at ₱5,800,000

8. PERAMBULATE STROLL Co. is a commercial leasing and finance company. As of year-end,

PERAMBULATE holds equipment that is available either for sale or lease. PERAMBULATE is

not yet decided whether to sell or to lease the equipment. The equipment has a carrying amount

of ₱1,000,000, fair value of ₱1,200,000 and costs to sell of ₱50,000. How should

PERAMBULATE Co. classify the equipment?

a. Inventory, ₱1,000,000 c. Held for sale, ₱1,150,000

b. Investment property, ₱1,250,000 d. Held for sale, ₱1,000,000

9. In Baer Food Co.’s 20x3 single-step income statement, the section titled “Revenues” consisted

of the following:

Net sales revenue 187,000

Results from discontinued operations:

Loss from discontinued component Z including loss on disposal of ₱1,200 16,400

Less: Tax benefit 4,000 (12,400)

Interest revenue 10,200

Gain on sale of equipment 4,700

Cumulative change in 20x1 and 20x2 income due to change in depreciation

method (net of ₱750 tax effect) 1,500

In the revenues section of the 20x3 income statement, Baer Food should have reported total

revenues of

a. 197,200 b. 215,400 c. 203,700 d. 201,900

10. During 20x4, Lopez Corporation disposed of Pine Division, a major component of its business.

Lopez realized a gain of ₱500,000, net of taxes, on the sale of Pine's assets. Pine's operating

losses, net of taxes, were ₱600,000 in 2004. How should these facts be reported in Lopez's

income statement for 2004?

Total Amount to be Included in

Income from Results of

Continuing Operations Discontinued Operations

a. 600,000 loss 500,000 gain

b. 100,000 loss 0

c. 0 100,000 loss

d. 500,000 gain 600,000 loss

“A fool shows his annoyance at once, but a prudent man overlooks an insult.” (Proverbs 12:16)

- END

SOLUTIONS TO QUIZ 2:

1. C

2. D

3. C

4. A
5. D

6. C 5,000,000 lower of carrying amount and fair value less costs sell

7. A – not available for immediate sale in its present condition

8. A – Sale is not highly probable

9. A

Solution:

Net sales revenue 187,000

Interest revenue 10,200

Adjusted total revenues 197,200

10. C (600,000 loss – 500,000 gain) = 100,000 loss