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 PGM (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. Assuming that the Machinery A had a fair market value less cost to sell at P3M, what is the carrying value Factory Building after the impairment loss has been recognized? Group of answer choices 1,500,000 3,000,000 1,950,000 1,750,000
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 PGM (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. Assuming that the Machinery A had a fair market value less cost to sell at P3M, what is the carrying value Factory Building after the impairment loss has been recognized? Group of answer choices 1,500,000 3,000,000 1,950,000 1,750,000
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.
Assuming that the Machinery A had a fair market value less cost to sell at P3M, what is the carrying value
Factory Building after the impairment loss has been recognized?
Group of answer choices
1,500,000
3,000,000
1,950,000
1,750,000
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