5_module_5_-_noncurrent_asset_held_for_sale_ae_17_intermediate_accounting_3(2)

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MODULE 5 PACKET AE 17 - INTERMEDIATE ACCOUNTING 3 NONCURRENT ASSET HELD FOR SALE Welcome to Module 5 In this module, we will discuss the nature, recognition, classification, measurement and presentation of noncurrent asset held for sale. You are also expected to differentiate the ordinary noncurrent asset from the noncurrent asset held for sale. During the discussion, you will be required to actively participate by illustrating the transactions and the corresponding journal entries affecting the recognition as well as the cessation of recognition of noncurrent asset held for sale. When you see this symbol that is shown across the printed discussion, this represents an important point for discussion or appreciation/appraisal to be rendered by the student. At the end of this module, you will be answering multiple choice questions and straight problems focusing on the requirements to be disclosed in the notes to the financial statements.

CONSULTATION HOURS: Virtual time: During your class schedule (either Monday or Tuesday) Phone or Messenger: Every Thursday from 8am to 11am and 1pm to 4pm

LEARNING OUTCOMES: By the end of this module, the students will be able to: 1. Discuss the nature, recognition, conditions for the classification, measurement and presentation of noncurrent asset held for sale. 2. Differentiate the ordinary noncurrent asset from noncurrent asset held for sale and the reason for separate presentation 3. Understand the effect of noncurrent asset held for sale in the financial position of an entity 4. Analyze how the presentation of noncurrent asset impacts the statement of financial position.

ASSESSMENT PLAN: 1. Graded recitation through interactive participation in a question and answer format during discussion 2. Problem solving games (points awarded to the first 5 students who can submit the correct answer and solution) 3. Individual Submission and discussion of homework or learning tasks through research online 4. Summative examinations in multiple choice question format

LEARNING PLAN/SCHEDULE OF ACTIVITIES ACTIVITIES A. Assigned Reading  Read 1. Conceptual

STRATEGIES/DESCRIPTION/TOPICS/ COURSE CONTENT 1. Read the definition and the nature of noncurrent asset and noncurrent asset held for sale.

2020-2021 Module Packets for AE 15 and ELEC 1 (Intermediate Accounting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines

TIME TO COMPLETE 0.5 hours 2.0 hours

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BACHELOR OF SCIENCE IN ACCOUNTANCY Framework on recognition of assets 2. Basic Accounting on the chapter relating to assets 3. Intermediate Accounting on the recognition, classification, measurement and presentation of noncurrent asset and noncurrent asset held for sale B. Lecture discussion 1. Read Chapter 8 of IA3 2. Watch Video 3. Interactive participation thru Q&A 4. Graded recitation

C. Synthesize the main points  Graded recitation

D. Assignment

2. Discuss your understanding of the transactions relating to noncurrent asset held for sale. 3. Illustrate the journal entries required in accounting for noncurrent asset held for sale 4. Analyze the impact on the statement of financial position of a separate presentation for noncurrent asset held for sale from the ordinary noncurrent asset.

1. Define noncurrent asset classified as held for sale 2. Distinguish between ordinary noncurrent asset and noncurrent asset held for sale 3. Discuss the accounting i.e. recognition, classification and measurement for noncurrent asset held for sale 4. Illustrate the journal entries in recording the transactions relating to noncurrent asset held for sale. 5. Distinction of abandoned noncurrent asset from temporarily abandoned noncurrent asset 6. Description of abandoned discontinued operation 7. Explain the presentation of noncurrent asset held for sale in the financial statements. 8. Define of discontinued operation 9. Illustrate the presentation of discontinued operation in the financial statements 1. Teacher summarizes the main points discussed. 2. Students will be required to recite by sharing their understanding/learnings specifically pointing out the important aspects that have just been discussed regarding the journal entries to record the different phases affecting the noncurrent asset held for sale. 3. This will validate the achievement of learning outcomes. 1. Prepare a learning guide to illustrate the different phases and the corresponding journal

2020-2021 Module Packets for AE 17 (Intermediate Accounting 3) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines

0.5 hours 4.1 hours 1.0 hour 2.0 hours 1.5 hours

1.5 hours 1.0 hour

2.0 hours

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BACHELOR OF SCIENCE IN ACCOUNTANCY

E. Summative Quiz

entries affecting the noncurrent asset held for sale. 2. Answer all questions and solve all problems from the textbook. 1. Take multiple question quiz for (to be announced)

1 hour

REFERENCES 1. Valix, C. T., Peralta, J. F. & Valix, C. A. M. (2019). Conceptual framework and accounting standards. 2019 edition. Manila : GIC Enterprises & Co., Inc. FIL 657.0218 V173c 2019 2. Valix, C. T., Peralta, J. F. & Valix, C. A. M. (2019). Intermediate accounting : volume one. 2019 revised edition. Manila : GIC Enterprises & Co., Inc. FIL 657.044 V173c 2019 v. 1 3. Valix, C. T., Peralta, J. F. & Valix, C. A. M. (2019). Intermediate accounting : volume two. 2019 revised edition. Manila : GIC Enterprises & Co., Inc. FIL 657.044 V173c 2019 v. 2 4. Valix, C. T., Peralta, J. F. & Valix, C. A. M. (2019). Intermediate accounting : volume three. 2019 revised edition. Manila : GIC Enterprises & Co., Inc. FIL 657.044 V173c 2019 v. 3 5. Cabrera, M. E. B. & Cabrera, G. A. B. (2019). Financial accounting and reporting fundamentals. 2019-2020 edition. FIL 657.48 C117f 2019 6. Millan, Zeus Vernon B. Intermediate Financial Accounting III. Baguio City: Bandolin Enterprise 2016

COURSE CONTENT DISCUSSION 5.2 NONCURRENT ASSET HELD FOR SALE  What is a noncurrent asset ?  A noncurrent asset is an asset that does not meet the definition of a current asset.  The noncurrent asset may be an individual asset, like land and building, or a disposal group.  What is a disposal group?  It is a group of assets to be disposed of by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

 What is a noncurrent asset held for sale?  PFRS 5 paragraph 6 provides that a noncurrent asset or disposal group is classified as held for sale if the carrying amount will be recovered PRINCIPALLY through a SALE transaction rather than through continuing use. a. What does this mean? 1. The entity does NOT intend to use the asset for its business operations; AND 2. The assets are intended to be sold to recover the carrying amount.

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BACHELOR OF SCIENCE IN ACCOUNTANCY  What conditions should be present for a noncurrent asset to be classified as held for sale? a. The asset or disposal group is available for immediate sale in the present condition subject only to terms that are usual and customary for sale of such assets or disposal group.  The current condition of the asset should be adequate to be effectively “sold as seen” or “as is, where is.” b. The sale must be highly probable.  When can a sale be considered as highly probable?  When the following conditions must be met: 1. Management must be committed to a plan to sell the asset or disposal group 2. An active program to locate a buyer and complete the plan must have been initiated 3. The sale is expected to be completed sale within one year from the date of classification as held for sale o An extension of the one-year period does not preclude the asset or disposal group from being classified as held for sale if the delay is caused by events or circumstances beyond the entity's control. 4. The asset or disposal group must be actively marketed for sale at a sale price that is reasonable in relation to the fair value. 5. Actions required to complete the plan indicate that it is unlikely that the plan will be significantly changed or withdrawn.

 How is asset held for sale measured for accounting purposes?  PFRS 5 paragraph 15 provides that an entity shall measure a noncurrent asset or disposal group classified as held for sale at the LOWER of carrying amount or fair value less cost of disposal.

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What is a carrying amount ? o It is the transaction price at the time of the acquisition of the noncurrent asset that is held for sale.



What is a fair value ? o It is the current valuation at which the noncurrent asset can be traded in a market for such kind or type of asset where there is a willing seller and a willing buyer. o For example, an appraisal value determined by an independent appraiser may be used to establish the fair value of a noncurrent asset held for sale.

 Will the noncurrent asset held for sale be depreciated just like the ordinary noncurrent assets?  Paragraph 25 provides that a noncurrent asset classified as held for sale shall not be depreciated.  If noncurrent asset held for sale will not be depreciated, being a noncurrent asset, how will the amount be measured and presented in the statement of financial position?  The noncurrent asset held for sale shall be subjected to a. WRITEDOWN to FAIR VALUE LESS COST OF DISPOSAL.  How is writedown treated for accounting purposes? 1. If the fair value less cost of disposal is lower than carrying amount of the asset or disposal group, the write down to fair value less cost of disposal is treated as an impairment loss. 2020-2021 Module Packets for AE 17 (Intermediate Accounting 3) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines

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BACHELOR OF SCIENCE IN ACCOUNTANCY An impairment loss is recognized because the amount reflected in the statement of financial position (carrying amount) is higher or overstated than what is actually realizable if the noncurrent asset is sold at the time of valuation or writedown. 2. If the noncurrent asset is a disposal group, the impairment loss is apportioned across the asset based on carrying amount after writing off any goodwill first. o

b. SUBSEQUENT INCREASE IN FAIR VALUE  If subsequently there is an increase in the fair value less cost of disposal, PFRS 5 paragraph 21 provides that an entity shall recognize a gain but not in excess of any impairment loss previously recognized. Illustration 1 On January 1 2019 an entity acquired an equipment at a cost of P5,000,000 to be used. The equipment has an estimated useful life of 10 years and a residual value of P500,000 On January 1 2022, the equipment was classified as held for sale. On such date, the fair value less cost of disposal was estimated at P1,900,000. On June 30 2022 the equipment was for sold for P1,500,000 1. To remove the equipment from property, plant and equipment and classify it as held for sale on January 1, 2022 Equipment held for sale Accumulated depreciation Equipment

3,650,000 1,350,000

Cost Accumulated depreciation Carrying amount -  January 1, 2022

5,000,000 1,350,000 3,650,000

Accumulated Depreciation Cost Less: Residual Value Depreciable Value Life Depreciation per year No. of years lapsed Jan 1, 2019 – Dec 31, 2021 Accumulated Depreciation at January 1, 2022

5,000,000 500,000 4,500,000 10 Years 450,000 3 Years 1,350,000

5,000,000

2. To measure the equipment held for sale at a lower of carrying amount and fair value less cost of disposal on January 1, 2022 Impairment loss Equipment held for sale

1,750,000

Carrying amount

3,650,000

1,750,000

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BACHELOR OF SCIENCE IN ACCOUNTANCY Fair value less cost of disposal Impairment loss

1,900,000 1,750,000

3. To record the sale of the equipment on June 30 2022 Cash Loss on sale of equipment Equipment held for sale

1,500,000 400,000 1,900,000

Note that the equipment held for sale is no longer depreciated from January 1 to June 30 2022 because it has been reclassified already as held for sale on January 1, 2022. Illustration 2 On January1, 2019, an entity acquired an equipment at the cost of 4,000,000 to be used in the ordinary course of business. The equipment has an estimated useful life of 5 years and has no residual value. On December 31, 2020, the equipment was classified as equipment held for sale. On such date, the fair value less cost of disposal was 3,000,000.   On July 1, 2021 the equipment was sold for 2,900,000.

1. To remove the equipment from property, plant and equipment and classify it as held for sale on December 31 2020. Equipment held for sale Accumulated depreciation Equipment

3,650,000 1,350,000 5,000,000

Cost Accumulated depreciation Carrying amount -  January 1, 2022

2. To measure the equipment held for sale at the lower of carrying amount and fair value less cost of disposal on December 31, 2020. No   entry is required because the equipment held for sale is measured at the carrying amount of 2,400,000 which is lower than fair value less cost of disposal. Fair value less cost of disposal Carrying amount Expected gain The gain is not recognized at this point because any game should not be anticipated at the point of classification as held for sale.

3. To record the sale of equipment on July 1, 2021 2020-2021 Module Packets for AE 17 (Intermediate Accounting 3) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines

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BACHELOR OF SCIENCE IN ACCOUNTANCY Cash Equipment held for sale Gain on sale of equipment c. REVALUED ASSET CLASSIFIED AS HELD FOR SALE  PFRS 5 paragraph 18 provides the entity adopts the revaluation model for the measurement of assets. o Any asset classified as held for sale should be revalued to fair value immediately prior to the classification as held for sale.



What is the accounting treatment for the effects of the revaluation of assets? 1. If the fair value at the classification date less the carrying amount at that date results in an excess of the revaluation amount, the excess shall be treated as additional revaluation surplus. Revaluation amount xx Less: Fair value at classification date xx Revaluation Surplus xx 2. Any cost of disposal at classification date should be recognized as impairment loss for the period and deducted from the asset held for sale. 3. At subsequent year end, the revalued asset classified as held for sale shall be measured at the lower of carrying amount and fair value less cost of disposal.

Illustration 3 On January 1, 2019 an entity acquired land at the cost of 2,500,000. The land is measured at fair value in accordance with the revaluation model. On December 31, 2019 the fair value of the land was 3,000,000. On June 30, 2020, the land was classified as held for sale. On such date, the fair value was estimated at 3,500,000  and the cost of disposal at 100,000. On December 31, 2020, the land was sold for 3,350,000. Journal entries   1. To record the acquisition of land on January 1, 2019 Land Cash

2,500,000 2,500,000

2.  To revalue the land at fair value on December 31, 2019

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BACHELOR OF SCIENCE IN ACCOUNTANCY Land Revaluation surplus

500,000 500,000

Fair value  -  December 31, 2019 Cost Revaluation surplus

3,000,000 2,500,000 500,000 

3. To revalue the land at fair value on the date of classification as held for sale on June 30, 2020 Land Revaluation surplus

500,000 500,000

Fair value -  June 30, 2020 Carrying amount -  December 31, 2019 Additional revaluation surplus

3,500,000 3,000,000 500,000

4. To remove the land from property, plant and equipment and classify it as held for sale on June 30, 2020 Land held for sale Land

3,500,000 3,500,000

5. To recognize the cost of disposal as impairment loss on June 30, 2020 Impairment loss Land held for sale

  100,000 100,000

6. To record the sale of land on December 31, 2020 Cash Loss on sale of land Land held for sale

3,350,000  50,000 3,400,000

7. To transfer the revaluation surplus to retained earnings Revaluation surplus Retained earnings

1,000,000 1,000,000

 What is an abandoned noncurrent asset?  PFRS 5 paragraph 13 provides that an entity shall not classify as held for sale a non-current asset or disposal group that is to be abandoned.  Why can’t the abandoned noncurrent asset be classified as asset held for sale?  This is because the carrying amount will be recovered principally through continuing use or the noncurrent asset is to be used until the end of its economic life.  How should a temporarily abandoned noncurrent asset be treated?

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BACHELOR OF SCIENCE IN ACCOUNTANCY 

PFRS 5 Paragraph 14 provides that an entity shall not account for a noncurrent asset that has been temporarily taken out of use as if it had been abandoned. o For example, an entity ceases to use a manufacturing plant because demand for its products has declined.  o However, the plant is maintained in workable condition and is expected that it will be brought back into use if demand picks up. o In this case, the plant is not regarded as abandoned.

 Is a change in classification from held for sale to noncurrent asset or disposal group permitted?  This situation usually happens when there is a decision not to sell the non-current assets anymore, thus, the criteria for being classified as held for sale may no longer be met.  PFRS  5 paragraph 27 provides that the entity shall measure the noncurrent asset that ceases to be classified as held for sale at the lower of: a. Carrying amount before the asset was classified as held for sale adjusted for any depreciation or amortization that would have been recognized if the asset had not been classified as held for sale b. Recoverable amount at the date of the subsequent decision not to sell Illustration An entity purchased equipment for P5,000,000 on January 1, 2019 with a useful life of 10 years and no residual value. On December 31, 2020 the entity classified the asset as held for sale. The fair value of the equipment on December 31, 2020 is P3,300,000 and the cost of disposal is P100,000. On December 31, 2021 the fair value of the equipment is P3,800,000 and the cost of disposal is P200,000. On the same date, 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. 1. To record the purchase of equipment on January 1, 2019 Equipment Cash

5,000,000 5,000,000

2. To record depreciation for 2019 Depreciation (5,000,000 / 10 years) Accumulated depreciation

500,000 500,000

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BACHELOR OF SCIENCE IN ACCOUNTANCY 3. To record depreciation for 2020 Depreciation (5,000,000 / 10 years) Accumulated depreciation

500,000 500,000

4. To remove the asset from property,  plant and equipment and classify it as held for sale on December 31, 2020 Equipment held for sale (FV3,800,000 + DC 200,000) 4,000,000 Accumulated Depreciation 1,000,000 Equipment 5,000,000 5. To measure the equipment held for sale at the lower of fair value less cost of disposal and carrying amount on December 31, 2020 Impairment loss Equipment held for sale

800,000 800,000

Carrying amount 4,000,000 Fair value less cost of disposal (3,300,000 – 100,000) 3,200,000 Impairment Loss 800,000 6. To measure the equipment that ceases as held for sale at the lower of carrying amount adjusted for depreciation that would have been recognized had the equipment not been classified as held for sale and the recoverable amount on December 31, 2021 Equipment held for sale Gain on reclassification

300,000 300,000

Carrying amount - December 31, 2020 Depreciation that would have been recognized in 2021 Carrying amount -  December 31, 2021

4,000,000 (500,000) 3,500,000

Recoverable amount 

3,600,000

(3,800,000 – 200,000)

Measurement of equipment -  Lower Carrying amount  per book -  December 31, 2020 Gain on reclassification

3,500,000 3,200,000 300,000

Notes: o On December 31, 2021, the equipment is measured at 3,500,000 because this is lower than the fair value less cost of disposal of 3,600,000

o PFRS  5 paragraph 28 states that any adjustment to the carrying amount of a noncurrent asset that ceases to be classified as held for sale should be included in profit or loss.

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BACHELOR OF SCIENCE IN ACCOUNTANCY o However, if the noncurrent asset is measured using the revaluation model before it was classified as held for sale, any adjustment shall be treated as a revaluation increase or decrease. 7. To reclassify the asset as property, plant and equipment on December 31, 2021 Equipment Equipment held for sale

3,500,000 3,500,000

8. To record depreciation for 2022 Depreciation 500,000 Accumulated depreciation (3,500,000 / 7 years remaining) 500,000

 How is an asset classified as held for sale presented in the statement of financial position?  PFRS 5 paragraph 3 provides that assets classified as noncurrent in accordance with PAS 1 shall not be classified as current assets until they meet the criteria to be classified as held for sale. o Simply stated, a noncurrent asset that is already classified as held for sale shall be presented separately as current asset. o PFRS 5 paragraph 38 provides that if the noncurrent asset is a disposable group classified as held for sale, the assets and liabilities of the group shall be presented separately and cannot be offset as a single amount. o In other words, the assets of the disposal group shall be described as “noncurrent assets classified as held for sale” presented separately as a single amount under current assets. o The liabilities of the disposal group shall be described as “liabilities directly associated with noncurrent assets classified as held for sale” presented separately as a single amount under current liabilities.

 What is a change in method of disposal?  The IASB amended IFRS 52 clarify the accounting treatment when an entity reclassifies an asset or disposal group from “held for sale” to “held for distribution to owners” or vice versa without any time lag. a. The change in classification is considered a continuation of the original plan of disposal. b. The entity shall continue to apply the “held for sale” or “held for distribution” accounting.  In other words, the asset shall be measured at the lower between carrying amount and fair value less cost of disposal or fair value less cost to distribute. c. At the time of reclassification, the entity shall recognize any impairment loss or subsequent increase in fair value less cost of disposal or distribution. d. The change in classification does not, in itself, extend the period in which a sale has to be completed.

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BACHELOR OF SCIENCE IN ACCOUNTANCY 5.2 DISCONTINUED OPERATION

 What is a discontinued operations?  Under appendix a of PFRS 5 a discontinued operation is defined as a component of an entity that either has been disposed of or is classified as held for sale and: a. Represents a separate major line of business or geographical area of operations b. Is a part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations c. Exclusively with a view to resale

 How is discontinued operation accounted for?  The discontinued operation is accounted for as a “disposal group classified as held for sale.”  The component of an entity must be: a. Available for immediate sale in the present condition and b. The sale must be highly probable  When is it required to report a discontinued operations?  A component of an entity is classified as discontinued operation at the date: a. When the entity has actually disposed of the operation b. When the operation meets the criteria to be classified as held for sale  Is there any prohibition on the timing or dating of reporting for discontinued operations?  PFRS 5 paragraph 12 prohibits the retroactive classification as a discontinued operation when the discontinued criteria are met after the end of reporting period.  Stated otherwise, if the discontinued criteria are met after the end of reporting period, an entity shall not classify the discontinued operation as held for sale in the current financial statements.

 What is a component of an entity?  A component of an entity maybe a subsidiary, a major line of business or geographical segments whose operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.  How is the component distinguished from the rest of the entity?  The component can be clearly distinguished operationally and for financial reporting purposes if the assets and the liabilities and the revenue and expenses are directly attributable to the component.   Assets, liabilities, income and expense are directly attributable to the component if they would be eliminated when the component is disposed of.  How does the discontinued operation of a component occur? a. Accordingly, a discontinued operation occurs when the operations and cash flows of the component has been or will be eliminated from the ongoing operations of the entity and b. The entity will have no significant continuing involvement in the component after disposal.

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BACHELOR OF SCIENCE IN ACCOUNTANCY  What are examples of discontinued operation? a. Selling by a diversified  entity of a major division that represents the entities only activities in the electronics industry b. Selling by a meat packing entity of controlling interest in a furniture  entity  All other operations of the entity are in the meatpacking business c. Selling by an entity of all its radio stations  the entity's remaining activities are television stations and the publishing house. d. A conglomerate is engaged in commodity business, real estate,  manufacturing and construction business  Selling of any of the four businesses is a discontinued operations

 Examples which are not considered as discontinued operation a. Phasing out of product line within a product group b. Shifting of production or marketing activities for a particular line of business from one location to another

c. Closing of a facility, factory or branch  How is the discontinued operations presented in income statement?  PFRS 5 Paragraph 33 provides that an entity shall disclose a single amount comprising the total of post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognized on the measurement to fair value less to cost of disposal or on the disposal of the assets or disposal group continuing the discontinued operation.  Simply stated, the income or loss from discontinued operation, net of tax shall be presented as a single amount in the income statement below the income from continuing operations.

 What amounts should be included in discontinued operation? a. The amount of revenue, expense and income or loss attributable to the discontinued operation during the current period and the related income tax.

b. An impairment loss is recognized when the fair value less cost of disposal of the discontinued operation is lower than the carrying amount of the net assets.  If the fair value less the cost of disposal is higher than the carrying amount, the expected gain is not recognized. c. Any gain or loss from the actual disposal of the assets and settlement of the liabilities of a discontinued operation is recognized on the date of sale or the date of settlement. d. The termination costs of employees and other costs which are directly incurred as a result of the discontinuance.

 How should the discontinued operation be presented in the statement of financial position?  PFRS 5 paragraph 38 provides that an entity shall also present separately on the face of the statement of financial position the following information: a. assets of the component held for sale separately from all other assets b. assets of the component held for sale are measured at the lower of fair value less to cost of disposal and their carrying amount c. liabilities of the component separately from all other liabilities d. non depreciation -  non current assets of the component held for sale shall not be depreciated

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BACHELOR OF SCIENCE IN ACCOUNTANCY  How should the amounts be presented in the statement of financial position?  PFRS 5 Paragraph 3 provides that the assets of the component shall be presented as a single amount under non current assets and the liabilities of the component shall be presented as a single amount under current liabilities.

 Is offsetting of assets and liabilities allowed?  The assets and liabilities of the component cannot be offset against the other.  PFRS 5 Paragraph 40 further provides that if a disposal group is classified as held for sale in the current year, an entity shall not reclassify or re-present the asset and liabilities of the disposal group for the prior period to reflect the ”held for sale” classification in the statement of financial position as of the end of the current reporting period.  The presentation of the assets and liabilities of the disposal group in the prior period is not changed.

 How is the effect of the discontinued operation be presented in the statement of cash flows?  PFRS 5 Paragraph 33 provides that the net cash flows attributable to the operating, investing and financing of a discontinued operation shall be separately presented in the statement of cash flows or disclosed in the notes.

 Illustration Zeta Company has two segments, A and B.  On July 1, 2019 the board of directors of the Zeta decided to dispose off segment B, an apparel division. On October 1, 2019, Zeta Company signed a contract to sell segment B but the sale is expected to be completed by January 31, 2018. On December 31 2019, the carrying amount of the assets of segment B was P3,000,000 and the carrying amount of the liabilities was P1,800,000.  The fair value less cost of disposal of segment B was P1,000,000.  The sale contract required Zeta Company to terminate certain employees of segment B.  The expected termination cost is P150,000  to be paid on June 30, 2020.  The accounting records of Zeta Company showed the following information for 2019: Sales Cost of goods sold Expenses Income tax

Segment A 5,000,000 2,500,000 1,000,000   480,000

  

Segment B 3,000,000 1,400,000   500,000   240,000

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BACHELOR OF SCIENCE IN ACCOUNTANCY  Presentation  The income statement of Zeta Company for the year ended December 31, 2019 will appear as follows: Zeta Company Income statement Year ended December 31, 2019 Sales Cost of sales Gross income Expenses Income before tax Income tax expense Income from continuing operations Income from discontinued operations, net Net income

5,000,000 (2,500,000) 2,500,000 (1,000,000) 1,500,000   480,000 1,020,000   510,000 1,530,000

Disclosure The notes to financial statements should include the following disclosure with respect to the discontinued operation:  Sales -  Segment B  Cost of goods sold  Gross income  Expenses  Impairment loss  Employee termination costs  Income tax  Income from discontinued operations  Fair value less cost of disposal of Segment B  Carrying amount of net assets -  Segment bB  Impairment loss

3,000,000 (1,400,000) 1,600,000 (500,000) (200,000) (150,000) (240,000) 510,000 1,000,000 (1,200,000) (200,000)

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