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Part 1: Multiple choices (10 Points) 1. A cash - generating unit is (1) The smallest business segment. (2) Any group of assets that generate cash flows. (3) Any group of assets that is reported separately to the management. (4) The smallest group of assets that generate independence cash flows from continuing use. 2. Which statement is false? (1) An impairment loss is the amount by which carrying amount of an asset or a cash - generating unit exceeds its recoverable amount. (2) Recoverable amount is the higher of its fair value less cost to sell and its value in use. (3) Value in use is the value of future cash flows expected to be derived from an asset or cash - generating unit. (4) When estimating future cash flows, the management should prepare the future cash flows covering a maximum of 5 years. 3. Which statement is true? (1) Intangible assets with a definite useful life and goodwill must be tested for impairment at least annually. (2) Impairment test must be performed only on the year-end date. (3) If previous calculation show that an asset's recoverable amount is significantly greater than its carrying amount, the entity need not re-estimate the asset's recoverable amount if no everts have occurred that would eliminate that difference. (4) If there is an indication that an assets may be impaired, the management needs to review only the remaining useful life of assets. 1. Full disclosure a. Decrease in equity resulting from transfer to owners. 2. Relevance b. Decreases in equity from depletions of assets. 3. Timeliness C. Important for making interfirm comparisons. 4. Distribution to owners d. Applying the same accounting practices over time. 5. Confirmatory value e. Agreement between an measure and the phenomenon it purports to represent. 6. Understandability f. Concerns the relative size of an item and its effect on decisions. 7. Going concern assumption g. Information is available prior to the decision. 8. Faithful representation h. Pertinent to the decision at hand. 9. Historical cost i. Implies consensus among different measures. 10. Materiality j. Information confirms expectations. 11. Comparability k. All information that could affect decision should be reported. 12. Cost effectiveness 1. Users understand the information in the context of the decision being made. 13. Recognition m. The absence of bias. 14. Consistency n. The entity will continue indefinitely. 15. Verifiability 0. The process of admitting information into financial statements. p. The benefit of providing accounting information should excess the cost of doing so. q. Record expenses in the period the related revenue is recognized. r. Transferring balances from the journal to the ledger. S. Inflation causes a violation of this assumption. t. The financial position of a company Part 2 : True/False (20 Points) 1. An entity shall classify an asset as current when it expects to realize the asset within twelve months after the reporting period 2. An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by TFRS. 3. Change in accounting method (treatment) is not possible. 4. An entity shall recognize all items of income and expense of the period in profit or loss unless an TFRS requires or permits otherwise. 5. An increase in capital shall be included in statement of comprehensive income. 6. It is likely that a change from the fair value model to the cost model will result in a more relevant presentation. 7. An entity shall prepare its financial reporting using the accrual basis of accounting. 8. Other comprehensive income must be reported in the equity section of the statement of financial position. 9. An entity shall present an analysis of expenses recognized in profit and loss based on either their nature or their function which provides information that is reliable and relevant. 10. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently. 4. Company ABC has been experiencing declining market demands for its fashionable products division. The management decided to test for asset impairment for this division. The assets was acquired on 1 January 20X1 at CU30,000,000 with estimated useful life of 20 years, and no residual value. The Company uses straight-line depreciation method. The test resulted as follow: FV, net of cost of selling of the division's assets 18,000,000 Present value of estimated total net future cash inflow generated from the division's assets 26,000,000 What amount of impairment loss, if any, should the Company record at 31 December 20X3? (1) None (2) 500,000 (3) 1,000,000 (4) 7,500,000 5. Refer to the situation described in question 4 above, assume the following information FV, net of cost of selling of the division's assets 21,000,000 Present value of estimated total net future cash inflow generated from the division's assets 24,000,000 What amount of impairment loss, if any, should the Company record at 31 December 20X3? (1) None (2) 1,500,000 (3) 3,000,000 (4) 4,500,000 Questions 1 (25 points) 1. On 1 January 20X0, Company MNO acquired a machine at a cost of 11,400,000, with estimated useful life of 12 years and no residual value. The Company uses a straight-line method depreciation. At the end of year 20X1, there was an indicator of assets impairment. The management tested for impairment and the result revealed the following: FV, net of cost of disposal 7,900,000 Value in use 8,925,000 (1) Calculate an impairment loss of assets (if any) at end of 20X1. (2) Prepare the journal entries (if any) to record the impairment loss at end of 20X1. (3) Calculate depreciation expense for 20X2 and 20X3. (4) Recoverable amount of the machine at end of year 20X3 is 7,000,000. Prepare the journal entry (if any) to record/reverse impairment loss. Question 2 (35 points) Company XYZ acquired a machine on 1 January 20X0 at the cost of 8,500,000. The estimated useful life of asset is 10 years with no residual value. Additional information are as follow: Starting from 31 December 20X1, the Company has adopted revaluation model for its assets . valuation. a) As at 31 December 20X1, FV of asset is 7,200,000 with no change in remaining useful life. As at 31 December 20X4, there are some indicators of asset impairment and the recoverable amount is 3,500,000. As at 31 December 20X5, recoverable amount is 4,600,000. Prepare journal entries to record asset revaluation at 31 December 20X1, using elimination method. Prepare journal entries to record depreciation expenses and surplus transfer to retained earnings for 20X2 and 20X3. Prepare journal entries to record impairment loss (if any) at 31 December 20X4. Prepare journal entries to record reversal of impairment loss (if any) and revaluation of assets at 31 December 20X5. b) d)