CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
BATCH 93 – MAY 2023 CPALE

DISCONTINUED OPERATION
1. On January 1, 2023, an entity had a division that met the criteria for discontinued operation. For the
period January 1 through October 31, 2023, the division had revenue of P5,000,000 and expenses of
P8,000,000. The assets of the division were sold at a gain of P1,000,000. Ignoring income tax, how should
the entity report the division’s operation for 2023?
a. P5,000,000 revenue and P8,000,000 expenses included in continuing operations.
b. P5,000,000 revenue, P8,000,000 expenses and P1,000,000 gain included in continuing operations.
c. P5,000,000 revenue, P8,000,000 expenses and P1,000,000 gain included in discontinued operations.
d. P5,000,000 revenue, P8,000,000 expenses included in continuing operations and P1,000,000 gain
included in discontinued operation.
2. On July 1, 2023, an entity decided to discontinue its Electronics Division, a separately identifiable
component of business. On December 31, 2023, the division had not been completely sold. However,
negotiations for the final and complete sale are progressing in a positive manner and it is probable that
the disposal will be completed within a year. Analysis of the records for the year disclosed the following
data relative to the Electronics Division:
Operating loss for 2023 7,000,000
Loss on disposal of some Electronics Division assets during 2023 500,000
Expected operating loss in 2024 preceding final disposal 2,000,000
Expected gain in 2024 on disposal of division 1,500,000
Income tax rate 25%
What amount should be reported as loss from discontinued operation in 2023?
a. 7,500,000
b. 5,625,000
c. 6,000,000
d. 4,500,000
3. A diversified entity had nationwide interests in commercial real estate development, banking, mining and
food distribution. The food distribution division was deemed to be inconsistent with the long-term
direction of the entity. On October 1, 2023, the board of directors voted to approve the disposal of this
division. The sale is expected to occur in August 2024.
The food division had the following revenue and expenses in 2023: January 1 to September 30, revenue
of P35,000,000 and expenses of P25,000,000; October 1 to December 31, revenue of P15,000,000 ad
expenses of P10,000,000. The carrying amount of the division assets on December 3,1 2023 was
P50,000,000 and recoverable amount was estimated to be P45,000,000. The sale contract required the
entity to terminate certain employees incurring an expected termination cost of P2,000,000 to be paid by
December 15, 2024. The income tax rate is 25%. What amount should be reported as income from
discontinued operations for 2023?
a. 8,000,000
b. 7,500,000
c. 9,750,000
d. 6,000,000
4. On December 31, 2023, an entity committed to a plan to discontinue the operations of Underwear
Division. The fair value of the facilities was P1,000,000 less than carrying amount on December 31,
2023. The division’s operating loss for 2023 was P2,000,000. The division was actually sold for
P1,200,000 less than carrying amount in 2024. The entity estimated that the division’s operating loss for
2024 would be P500,000.
What amount should be reported as pretax loss from discontinued operation in 2023?
a. 3,000,000
b. 2,000,000
c. 1,000,000
d. 3,200,000

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5. An entity had two operating divisions, one manufacturing farm equipment and the other office supplies
considered separate components.
The farm equipment component had been unprofitable and on September 1, 2023, the entity adopted a
plan to sell the assets of the division.
The actual sale was effected on December 15, 2023 at a price of P3,000,000. The carrying amount of the
division’s assets was P5,000,000. The farm equipment division incurred before-tax operating loss of
P1,000,000 from the beginning of the year through December 15, 2023.
The entity’s after-tax income from continuing operations is P9,000,000 for 2023. The income tax rate is
25%.
1. What amount should be reported as loss from discontinued operation for 2023?
a. 2,000,000
b. 3,000,000
c. 1,500,000
d. 2,250,000
2. What amount should be reported as net income for the current year?
a. 7,000,000
b. 6,750,000
c. 7,500,000
d. 6,000,000
6. A parent entity, approved on December 1, 2023 a plan to sell a subsidiary. The sale is expected to be
completed on March 31, 2024. The year-end is December 31, 2023 and the financial statements were
approved on March 1, 2024.
The subsidiary had net assets with carrying amount of P15,000,000 including goodwill of P1,500,000 on
December 31, 2023. The subsidiary made a loss of P3,000,000 from January 1 to March 1, 2024 and is
expected to make a further loss of P2,000,000 up to the date of sale.
At the date of approval of the financial statements, the parent entity was in negotiation for the sale of the
subsidiary but no contract had been signed. The entity expected to sell the subsidiary for P9,000,000 and
to incur cost of disposal of P500,000. The value in use of the subsidiary was estimated to be P10,000,000.
On December 31, 2023, what is the measurement of the subsidiary which is considered as a “disposal
group classified as held for sale”?
a. 15,000,000
b. 10,000,000
c. 9,000,000
d. 8,500,000

End

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