INVESTMENT PROPERTY AND OTHER INVESTMENTS

1. Paramount Purchases a landed property at a cost of P100,000,000. In the sale and

purchase agreement, P20,000,000 of the purchase price is attributed to the land portion.
The building consists of 10 floors of equal space. Two floors are used for administrative
purposes and the balance let out to tenants. Paramount also incurs the following costs in
connection with the purchase of the property: Legal and agency fees, P3,000,000; Soft
launching cost to market for tenants, P500,000; Feng shui cost for re-arrangements of
interiors, P300,000 and administrative expenses, P200,000. At what amount should the
investment property be initially recognized?
a. P82,400,000
b. P82,800,000
c. P83,200,000
d. P103,000,000
2. Mortal Company leases an entire shopping complex from Journal Company under a 20-
year operating lease. Under the lease agreement, Mortal would manage and take the risks
of operating the shopping complex for 20 years. It pays a yearly rental of P40,000,000 to
Journal Company. Mortal Company uses 20% of the floor area for its own operations. The
rest of the floor area is sub-leased to other tenants. Mortal Company expects rental
income from the sublease to be about P35,000,000 per year for 20 years. The borrowing
costs of Mortal Company is 8% per year. The cost of constructing the complex incurred
by Journal Company elects to treat its interest in the shopping complex as an investment
property, being its interest in the underlying asset, at what amount should the investment
property be initially recognized by Mortal Company?
a. None
b. P343,640,000
c. P400,000,000
d. P500,000,000
3. On January 1, 2014, Trunk Company uses the cost model for all investment properties,
acquired an investment property at cost of P4,000,000. The estimated life of the property
is 40 years, however, based on current market trend for similar property that is used for
rental, its economic life is 30 years. The estimated salvage values based on its life is
P100,000, while based on its economic life is P400,000. The estimated recoverable value
of the property on December 31, 2016 is P3,700,000. At what amount should the
investment property be reported on December 31, 2016 statement of financial position?
a. P3,640,000
b. P3,700,000
c. P3,707,500
d. P3,760,000
4. On July 1, 2014, Strata Company purchases an investment property at a cost of
P50,000,000 including transaction costs. On October 1, 2014 the fair value of the property
 increases to P51,000,000. At December 31, 2014 the fair value of the property is
P48,000,000. The rental income received per quarter is P1,500,000. The property has a
useful life of 50 years.
Question 1: If the company uses the cost model, what is the net effect on the profit or
loss for the six months ended December 31, 2014 in relation to the investment property?
a. (P500,000)
b. P1,000,000
c. P1,500,000
d. P2,000,000
Question 2: If the company uses the fair value model, what is the net effect on the profit
or loss for the six months ended December 31, 2014 in relation to the investment
property?
a. P1,000,000
b. P1,500,000
c. P2,000,000
d. P3,500,000

5. On January 2, 2016, Denmark’s investment property has carrying value of P3,600,000

under the fair value model. On December 31, 2016 the property has a fair value of
P3,000,000, what amount of gain or loss should Denmark continue to recognize if
Denmark would shift to cost model?
a. Gain of P600,000 reported in other comprehensive income
b. Loss of P600,000 reported in the profit or loss
c. Loss of P600,000 reported in equity as decrease in revaluation surplus
d. Zero
6. On January 1, 2014, Double Company which uses the fair value model, purchases an
investment property at a cost of P50,000. At December 31, 2014 the market value of the
property is P60,000,000. The fair market value of the property on December 31, 2015 is
P55,000,000. On January 1, 206, the property was reclassified to property, plant, and
equipment. At what amount should the property, plant and equipment be initially
recorded?
a. Zero
b. P50,000,000
c. P55,000,000
d. P60,000,000
7. Astra Company has a plant asset with a carrying value of P1,200,000 as of December 31,
2015. On January 1, 2016 the company decided to convert the plant asset to investment
property. The fair value of the plant asset at date of conversion is P900,000. The
conversion would result to
a. P300,000 loss on conversion reported as other comprehensive income
b. P300,000 loss on conversion reported in the profit or loss
 c. P900,000 increase in investment
d. P1,200,000 decrease in plant assets
8. Portent Company, a property developer, completed the development of 30 units of office
buildings for sale. Upon completion, 5 units remain unsold and classified as inventories
the cost of these remaining units is P2,000,000 per unit whilst the net selling price is
P2,500,000 per unit. Management subsequently decides to hold the units as investment
property by letting out to tenants. What amount of gain or loss should Portent Company
recognize on the transfer of inventories to investment property?
a. None
b. P500,000
c. P2,000,000
d. P2,500,000
9. On January 2, 2013, Eastern Company a medium-sized enterprise, purchased a vacant plot
for P3,000,000. Management believed that the plot would appreciate in value and that
the investment would be sold in 2015. Management annually obtains the services of a
property expert, who determined the fair value of the plot:
December 31, 2013 P4,000,000 December 31, 2014 not determinable
The property expert indicated that the property market has shifted significantly due to a
new proposed tax on properties. As this has resulted in a range of possible values, he was
unable to reliably determine a fair value.

Question 1: What type of property Eastern Company should disclose on December 31,
2013?
a. An investment property with a carrying value of P3,000,000
b. An investment property with a carrying amount of P4,000,000
c. A property, plant and equipment with an initial carrying value of P3,000,000
d. A property, plant and equipment with an initial carrying value of P4,000,000

Question 2: What type of property Eastern Company should disclose on December 31,
2014?
a. An investment property with a carrying value of P3,000,000
b. An investment property with a carrying amount of P4,000,000
c. A property, plant and equipment with an initial carrying value of P3,000,000
d. A property, plant and equipment with an initial carrying value of P4,000,000

10. On January 1, 2011 Grand Company purchase a property at a cost of P100,000,000. The
property is classified as property, plant and equipment in accordance with PAS 16 and its
being depreciated over 50 years. At December 31, 2015 an impairment loss of P9,000,000
was recognized. On January 1, 2019, the property is classified as investment property
carrier at fair value in accordance with PAS 40. The fair value of the property at the date
 of change in use is P89,880,000. As of December 31, 2019, the fair value of the property
is P92,000,000.

Question 1: What amount should Grand Company disclose in the profit or loss in the SCI
for the period ended December 31, 2019?
a. None
b. P1,797,333
c. P1,997,333
d. P2,120,000

Question 2: What amount of revaluation surplus should Grand Company continue to

disclose in the statement of financial position as of December 31, 2019?
a. None
b. P5,740,000
c. P5,880,000
d. P7,800,000

11. The following information relates to non-current investments that Dragon Company
placed in trust as required by underwriter of its bonds:
Bonds sinking fund balance, January 1, 2015, P2,000,000; Additional investment
during 2015, P500,000; Interest revenue, P20,000; Administrative costs, P15,000;
Carrying value of bonds payable, P3,000,000

What amount should Dragon Company report in its December 31, 2015 balance sheet
related to its non-current investment for bond sinking fund requirements?
a. P2,000,000
b. P2,500,000
c. P2,505,000
d. P3,000,000

12. On January 1, 2011, Crane Company purchased a P4,000,000 ordinary life insurance policy
on its president. Additional data for the year 2014 are: Cash surrender value, January 1,
P200,000; Cash surrender value, December 31, P220,000; Annual insurance premium paid
on January 1, 2015, P80,000; Dividend received on August 1, P10,000. Crane Company is
the beneficiary under the life insurance policy. Crane should repot life insurance expense
for 2015 of
a. 50,000
b. 60,000
c. 70,000
d. 80,000