Please explain the following

14. Autobots Bottling purchased for P800,000 a trademark

for a very successful soft drink it markets under the

name OK!. The trademark was determined to have an

indefinite life. A competitor recently introduced a

product that is in direct competition with the OK!

product, thus suggesting the need for an impairment

test. Data gathered by Autobots suggests that the

useful life of the trademark is still indefinite, but the

cash flows expected to be generated by the trademark

have been reduced either to P30,000 per year (with a

probability of 80%) or to P60,000 per year (with 20%

probability). The appropriate risk-free interest rate is

5%. The appropriate risk-adjusted interest rate is

10%.

The loss on impairment of trademark is?

15. When deciding on the discount rate that should be

used, which factors should be taken into account?

a. Pretax rates

b. The time value of money

c. Risks that relate to the asset for which future cash

flow estimates have not been adjusted

d. All of these.

16. When calculating the estimates of future cash flows,

which of the following cash flows should not be

included?

a. Cash flows from the sale of assets produced by the

asset

b. Cash outflows on the maintenance of the asset

c. Cash flows from disposal

d. Income tax payment

17. An entity has an oil platform in the sea. The entity has

to decommission the platform at the end of its useful

life, and a provision was set up at the commencement

of production. The carrying amount of the provision is

P8 million. The entity has received an offer of P20

million (selling costs P1 million) for the rights to the oil

platform, which reflects the fact that the owners have

to decommission it at the end of its useful life. The

value-in-use of the oil platform is P26 million ignoring

decommissioning costs. The current carrying amount

of the oil platform is P28 million. How much should be

recognized as impairment loss?

18. The recoverable amount of asset to be disposed of is

a. Fair value less costs of disposal

b. Value in use

c. The higher of a and b

d. The lower of a and b

Use the following information for the next two questions.

An entity has a building classified as investment property.

The building was acquired on January 1, 2016 at a cost of

P50,000,000. The building has an estimated life of 25

years and nil residual value. The following information is

available:

12/31/19 12/31/20

Fair value P45,000,000 P42,000,000

Costs of disposal 4,000,000 3,500,000

Value in use 43,000,000 39,500,000

19. If the entity used the cost model, the total expense to

be recognized in 2020 profit or loss is?

20. If the entity used the fair value model instead of cost

model, the 2020 profit would have been

a. The same c. Lower by P1,000,000

b. Higher by P500,000 d. Lower by P500,000

Use the following information for the next three questions.

An entity is developing a new production process. During

2019, expenditure incurred was P1,000,000, of which

P900,000 was incurred before 1 December 2019 and

P100,000 was incurred between 1 December 2019 and 31

December 2019. The entity is able to demonstrate that, at

1 December 2019, the production process met the criteria

for recognition as an intangible asset. The recoverable

amount of the know-how embodied in the process

(including future cash outflows to complete the process

before it is available for use) is estimated to be P500,000.

During 2020, expenditure incurred is P2,000,000. At the

end of 2020, the recoverable amount of the know-how

embodied in the process (including future cash outflows to

complete the process before it is available for use) is

estimated to be P1,900,000.

21. The impairment loss to be recognized in 2019 is?

22. The impairment loss to be recognized in 2020 is?

23. The intangible asset shall be tested for impairment

a. Annually, if there is any indication of impairment.

b. Annually, irrespective of whether there is any

indication of impairment.

c. Annually, irrespective of whether there is any

indication of impairment when the asset is already

available for use.

d. The intangible asset is not subject to impairment

since it is not yet available for use.

24. Which statement is incorrect regarding recognition and

measurement of an impairment loss?

a. An impairment loss shall be recognized

immediately in profit or loss, unless the asset is

carried at revalued amount in accordance with

another Standard.

b. Any impairment loss of a revalued asset shall be

treated as a revaluation decrease in accordance

with that other Standard.

c. After the recognition of an impairment loss, the

depreciation (amortization) charge for the asset

shall be adjusted in future periods to allocate the

asset's revised carrying amount, less its residual

value (if any), on a systematic basis over its

remaining useful life.

d. None of these.

25. Skipton Co. bought land in 2011 at a cost of P300,000.

In 2014 the land was revalued to P350,000 and in

2019 it was revalued again to P400,000. At the end of

2020 the land had a value in use of P270,000 and the

fair value less costs of disposal was P285,000.

How much of the impairment loss should be recognized

in 2020 profit or loss?