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Chapter 20

Investment Property

PROBLEM 20-1: TRUE OR FALSE


1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. FALSE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE ₱200K loss – carrying amount of replaced escalator

PROBLEM 20-2: THEORY & COMPUTATIONAL


1. D
2. B

3. Solution:
 Farming land purchased for its investment potential.
Planning permission has not been obtained for
building constructions of any kind. 700,000

APPLICABLE
OTHER ITEMS STANDARD
 Factory which, due to a decline in activity, is no
PFRS 5
longer required and is now being held for sale.
 Factory in the process of being constructed on
PFRS 15
behalf of the government.
 New office building used as head office which
was purchased specifically in the center of a
PAS 16
major city in order to exploit its capital gains
potential.

4. D

5. B

6. B

7. A

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8. Solution:
Acquisition cost 1,200,000
Professional fees and taxes 50,000
Repairs and renovations 200,000
Total cost 1,450,000

9. B

10. B

11. Solutions:
Requirement (a): Statement of profit or loss
(20M + 8M) – (15M – 10M) = 3,000,000 unrealized gain

Requirement (b): Statement of financial position


(20M + 8M) = 28,000,000

Requirement (c): Adjusting entry


Investment property 3,000,000
Unrealized gain 3,000,000

12. Solutions:
Requirement (a): Statement of profit or loss
(9M + 9M) ÷ 10 = 1,800,000 depreciation expense

Requirement (b): Statement of financial position


(9M + 9M) x 7/10 = 12,600,000

Requirement (c): Adjusting entry


Depreciation expense 1,800,000
Accumulated depreciation - Investment property 1,800,000

13. D

14. C

15. Solution:
Requirement (a):
Investment property (at fair value) 800,000
Accumulated depreciation 4,000,000
Impairment loss (squeeze) 200,000
Building 5,000,000

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Requirement (b):
Investment property (at fair value) 1,400,000
Accumulated depreciation 4,000,000
Building 5,000,000
Revaluation surplus (squeeze) 400,000

Requirement (c):
Investment property (at carrying amount) 1,000,000
Accumulated depreciation 4,000,000
Building 5,000,000

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PROBLEM 20-3: EXERCISES

1. Solutions:
Requirement (a):
Land held for long-term capital appreciation 200,000
Land held for a currently undetermined future use 700,000
Building rented out under operating lease 800,000
Building rented under finance lease and rented out under
operating lease 1,200,000
Total investment property 2,900,000

Requirement (b):
Other items Classification
Land held for future plant site PPE
Land held for sale in the ordinary course of business INVENTORY
Building rented out under finance lease NOT AN ASSET
Building rented under an operating lease NOT AN ASSET
Equipment leased out under an operating lease PPE
Equipment leased under a finance lease PPE

2. Solutions:
Case 1
(1,200,000 + 50,000 + 200,000) = 1,450,000 x 9.5/10 = 1,377,500

Case 2
Unrealized loss – P/L (1.4M – 1.450M) 50,000
Investment property 50,000

3. Answer: None, the property is classified as investment property.

4. Answer: None, the property is classified as owner-occupied property.

5. Answer: 1,300,000 – the lower amount

6. Solutions:

Case 1:
Investment property (1M x 7/10) 700,000
Accumulated depreciation (1M x 3/10) 300,000
Building 1,000,000

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Case 2:
Investment property (fair value) 900,000
Accumulated depreciation (1M x 3/10) 300,000
Building – PPE 1,000,000
Revaluation surplus 200,000

Case 3:
Investment property (fair value) 900,000
Accumulated depreciation (1M x 3/10) 300,000
Building – PPE 1,000,000
Gain on transfer – P/L 200,000

Case 4:
Investment property (recoverable amt.) 600,000
Accumulated depreciation (1M x 3/10) 300,000
Impairment loss (squeeze) 100,000
Building 1,000,000

7. Solution:
Investment property 930,000
Loss on transfer 70,000
Inventory 1,000,000

8. Answer:
None. The event is not a change in use.

9. None. The event is not a change in use.

10. Solution:
Building (6M x 6/10) 3,600,000
Accumulated depreciation (6M x 4/10) 2,400,000
Investment property 6,000,000

11. Solution:
Investment property (1.5M + 1.2M + 1M) 3,700,000
Cash 3,700,000
to record the construction costs

Investment property (4M – 3.7M) 300,000


Unrealized gain 300,000
to record the year-end adjustment

12. Solution: (4,000,000 x 2/5) = 1,600,000

13. Answer: 1,200,000

14. Answer:
Accum. depreciation (4.2M x 4/6) 2,800,000
Loss from fire (squeeze) 1,400,000
Investment property 4,200,000

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Compensation from third parties for investment property that was impaired,
lost or given up (e.g. claims from insurance company for insured property
lost) shall be recognized in profit or loss only when the compensation
becomes receivable.

Moreover, impairment or losses of investment property, related claims for or


payments of compensation from third parties and any subsequent purchase
or construction of replacement assets are separate economic events and
are accounted for separately. Meaning the derecognition of the property
which was lost from the casualty and the recognition of a claim from the
insurance company are separate economic events, and thus, accounted
for separately.

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PROBLEM 20-4: CLASSROOM ACTIVITY

Solution:
Please refer to the accompanying power point presentation. The “pointers” in
the activity are actually the “Learning Competencies” in the lecture aid.

Dear Fellow Teacher,

Please elaborate to the learners that in real life settings,


how we deal with other people (e.g., clients, colleagues, family,
friends, strangers, etc.) is, more often than not, more important
than the level of education that we have attained. That is why I
assigned a rating of 70% for “audience impact” and 30% only to
the other criteria.

If the learner understands this now, he/she will surely


go a long way after graduation.

Best wishes,
Zeus

PROBLEM 20-5: THEORY


1. E 6. A
2. C 7. C
3. C 8. C
4. D 9. D
5. D 10. A

PROBLEM 20-6: THEORY


1. D 6. B 11. A 16. D
2. C 7. C 12. C 17. C
3. D 8. A 13. C 18. C
4. C 9. D 14. C 19. A
5. B 10. D 15. D 20. D

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PROBLEM 20-7: MULTIPLE CHOICE: COMPUTATIONAL
1. D
Solution:
Land held for long-term capital appreciation 3,500,000
Land held for a currently undetermined future use 5,700,000
Land held for long-term speculation 1,400,000
Land owned by the entity and leased out under an operating
Lease 7,800,000
Building leased under a finance lease and leased out under
an operating lease 700,000
Building owned by the entity and leased out under an
operating lease 11,800,000
Building – currently vacant but is held to be leased out under
various operating leases 7,100,000
Warehouse currently being developed – to be used as
investment property 9,700,000
Total investment property 47,700,000

2. B (29,370,874 x 18/20) = 26,433,787

3. B (6M – 480,000) = 5,520,000 carrying amt. at the beg. of the year –


240,000* depreciation for the year = 5,280,000 carrying amt. at the end
of the year
*(480,000 ÷ 2) = 240,000

4. D

5. D

6. B (1M x PV annuity due @14%, n=12) = 6,452,733 + 4,000,000 =


10,452,733 lower than the 10,550,000 fair value

7. A (8.1M + 5M + 4.89M + 11.05M) = 29,040,000

If an entity classifies a property interest in an operating lease as investment


property, the choice between the Cost Model and the Fair Value Model is
lost. All items classified as investment property are measured at fair value.

8. D

9. B 400,000 – (1M X 6/10) = 200,000 impairment loss

• Choice (a) is incorrect because the existing standard(s), i.e., in this case
PAS 40 and PAS 36, apply until the date of reclassification.
• Choice (c) is incorrect because the investment property is measured
under the cost model.
• Choice (d) is incorrect.

10. C 400,000 – (1M X 6/10) = 200,000 unrealized loss


(See explanations in the preceding problem)