On January 1, 2017, the llocos Norte Corporation purchased the business of its competitor in a business combination. The total purchase price was at P15M. The only identifiable asset of the said competitor included a factory building with a fair value of 3,600,000 and 2 machineries with a fair market value of P6M (Mach A) and P4M (Mach B). The acquired business is considered a separate business segment distinct from all other operations of llocos Norte Corporation. The factory building was estimated to have a 30-year remaining useful life while machineries were estimated to have a fifteen and twenty-year useful lives for machinery A and B, respectively. Assets are to be depreciated using straight-line method to zero residual values. Late in 2021, because of technological changes in the industry and reduced selling prices for its products, the company believes that its asset(s) of this business segment have been impaired. The company estimates that the business segment will produce cash inflows of P4,000,000 and will incur cash outflows of P2,950,000 each year for the next ten years (the revised useful life of the segment as a whole). It is not able to determine the fair value of the asset based on a current selling price of the factory and machinery. The company's discount rate is 12%. It was further determined that the entire business segment can be disposed of for a total of P6,500,000 net of costs to sell. How much is the loss from impairment to be recognized? O 4,900,000 O 5,067,266 O 5,467,266 O 3,500,000
On January 1, 2017, the llocos Norte Corporation purchased the business of its competitor in a business combination. The total purchase price was at P15M. The only identifiable asset of the said competitor included a factory building with a fair value of 3,600,000 and 2 machineries with a fair market value of P6M (Mach A) and P4M (Mach B). The acquired business is considered a separate business segment distinct from all other operations of llocos Norte Corporation. The factory building was estimated to have a 30-year remaining useful life while machineries were estimated to have a fifteen and twenty-year useful lives for machinery A and B, respectively. Assets are to be depreciated using straight-line method to zero residual values. Late in 2021, because of technological changes in the industry and reduced selling prices for its products, the company believes that its asset(s) of this business segment have been impaired. The company estimates that the business segment will produce cash inflows of P4,000,000 and will incur cash outflows of P2,950,000 each year for the next ten years (the revised useful life of the segment as a whole). It is not able to determine the fair value of the asset based on a current selling price of the factory and machinery. The company's discount rate is 12%. It was further determined that the entire business segment can be disposed of for a total of P6,500,000 net of costs to sell. How much is the loss from impairment to be recognized? O 4,900,000 O 5,067,266 O 5,467,266 O 3,500,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2017, the llocos Norte Corporation purchased the business of its competitor in a business combination. The total purchase price was at P15M. The only identifiable
asset of the said competitor included a factory building with a fair value of 3,600,000 and 2 machineries with a fair market value of P6M (Mach A) and P4M (Mach B). The acquired
business is considered a separate business segment distinct from all other operations of llocos Norte Corporation. The factory building was estimated to have a 30-year remaining
useful life while machineries were estimated to have a fifteen and twenty-year useful lives for machinery A and B, respectively. Assets are to be depreciated using straight-line method
to zero residual values. Late in 2021, because of technological changes in the industry and reduced selling prices for its products, the company believes that its asset(s) of this business
segment have been impaired. The company estimates that the business segment will produce cash inflows of P4,000.000 and will incur cash outflows of P2,950,000 each year for the
next ten years (the revised useful life of the segment as a whole). It is not able to determine the fair value of the asset based on a current selling price of the factory and machinery.
The company's discount rate is 12%. It was further determined that the entire business segment can be disposed of for a total of P6,500,000 net of costs to sell.
How much is the loss from impairment to be recognized?
O 4,900,000
O 5,067,266
O 5,467,266
O 3,500,000
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