On January 1, 2021, Bug Company purchased equipment with a cost of P10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line depreciation. At December 31, 2021 and December 31, 2022, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end:                                                                                                                                                                                                                                                 12/31/2021                            12/31/2022             Fair value less cost to sell              P9,115,000                            P8,850,000             Value-in-use                                     P9,155,000                            P8,815,000             There is a change in the asset’s useful life at the end of 2021 to 15 years from the date of acquisition. Which of the following statements is (are) correct if Bug Company uses revaluation model to account for this asset? Statement 1: The balance of revaluation surplus at the end of 2022 is P348,929. Statement 2: A gain on recovery of P223,786 is reported in Bug’s income statement for year ended December 31, 2022. Statement 3: The asset is reported as of December 31, 2022 at P8,724,857. Group of answer choices None of the statements is correct Only statement 1 is correct Only statement 2 is correct Only statement 3 is correc

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On January 1, 2021, Bug Company purchased equipment with a cost of P10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line depreciation. At December 31, 2021 and December 31, 2022, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end:

                                                                                                                                                                                                                                                12/31/2021                            12/31/2022

            Fair value less cost to sell              P9,115,000                            P8,850,000

            Value-in-use                                     P9,155,000                            P8,815,000

           

There is a change in the asset’s useful life at the end of 2021 to 15 years from the date of acquisition. Which of the following statements is (are) correct if Bug Company uses revaluation model to account for this asset?

Statement 1: The balance of revaluation surplus at the end of 2022 is P348,929.

Statement 2: A gain on recovery of P223,786 is reported in Bug’s income statement for year ended December 31, 2022.

Statement 3: The asset is reported as of December 31, 2022 at P8,724,857.

Group of answer choices
None of the statements is correct
Only statement 1 is correct
Only statement 2 is correct
Only statement 3 is correc
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