Aimee C.

Delgado Unit 3 Investment Property INTACC2

Exercise 1 – Investment Property Journal Entries

1. Fair Value Model - Building

Journal entries in 2020:

Investment property P9,000,000

Repairs expense P400,000
Cash P9,400,000
To record investment property and repairs

Loss on change in fair value P1,000,000

Investment property P1,000,000
To record fair value change

Building FV at Dec. 31, 2020 P8,000,000

Building cost at Jan. 1, 2020 - P9,000,000
Loss on change in FV 2020 (P1,000,000)

2021:

Loss on change in fair value P500,000

Investment property P500,000
To record fair value change

Building FV at Dec. 31, 2021 P7,500,000

Building FV at Dec. 31, 2020 - P8,000,000
Loss on change in FV 2021 (P500,000)

Fair Value Model – Land

Journal entries in 2020:

Investment property P7,700,000

Repairs expense P20,000
Cash P7,720,000
To record investment property and repairs

Purchase price P7,500,000

Broker’s Fee P200,000
Investment property P7,700,000
Investment property P1,000,000
Gain on change in fair value P1,000,000
To record fair value change

Building FV at Dec. 31, 2020 P8,500,000

Building cost at Jan. 1, 2020 - P7,500,000
Gain on change in FV 2020 P1,000,000

2021:

Investment property P1,000,000

Gain on change in fair value P1,000,000
To record fair value change

Building FV at Dec. 31, 2021 P9,500,000

Building FV at Dec. 31, 2020 - P8,500,000
Gain on change in FV 2021 P1,000,000

2. Cost Model – Building

Journal entries in 2020:

Investment property P9,000,000

Repairs expense P400,000
Cash P9,400,000
To record investment property and repairs

Depreciation expense P900,000

Accumulated depreciation P900,000
To record depreciation

Building cost at Jan. 1, 2020 P9,000,000

Useful life ÷ 10 years
Annual depreciation P900,000

2021:

Depreciation expense P900,000

Accumulated depreciation P900,000
To record depreciation

Exercise 2 – Investment property using cost and fair value model

1. Loss on change in fair value P100,000

Investment property P100,000
To record fair value change
Building FV at Dec. 31, 2019 P5,900,000
Building FV at Dec. 31, 2018 - P6,000,000
Loss on change in FV 2019 (P100,000)

2. Depreciation expense P145,000

Accumulated depreciation P145,000
To record depreciation

Building cost at Jan. 1, 2016 P5,800,000

Useful life ÷ 40 years
Annual depreciation P145,000

Exercise 3 – Investment property transfers

1. Fair value of building – Dec. 31, 2019 P35,000,000

Carrying amount – Dec. 31, 2019 (P20,000,000)
Revaluation surplus P15,000,000

2. Fair value of land – Dec. 31, 2019 P15,000,000

Carrying amount – Dec. 31, 2019 (P10,000,000)
Gain on reclassification P5,000,000

3. Journal entries:

Building:

Building P15,000,000
Revaluation surplus P15,000,000
To record revaluation of building

Investment property P35,000,000

Building P35,000,000
To record reclassification of building

Land:

Investment property P15,000,000

Land P10,000,000
Gain on change in fair value P5,000,000
To record inventory reclassification

Exercise 4 – Investment property transfers

1. Cost of Property P10,000,000

Net realizable value (P8,000,000)
Decrease in value P2,000,000
2. Fair value of property 2020 P7,000,000
Net realizable value – Dec. 31, 2019 (P8,000,000)
Loss on change in FV (1,000,000)

Exercise 5 – Investment property transfers

100 M
Annual depreciation = = P4,000,000
25 years

4M x 5 years (2016-2020 depreciation) = P20,000,000

Original cost of the Building P100,000,000

Accumulated depreciation (2016-2020) (P20,000,000)
Carrying amount – Dec. 31, 2020 P80,000,000

Fair value of building – Dec. 31, 2020 P70,000,000

Carrying amount – Dec. 31, 2020 (P80,000,000)
Loss on change in FV (P10,000,000)

Exercise 6 – Investment property disposal

220,000
Annual depreciation = = P5,500
40 years

P5,500 x 3 years (2017-2019 depreciation) = P16,500

Original cost P220,000

Accumulated depreciation (2017-2019) (P16,500)
Carrying amount – Jan. 1, 2020 P203,500

Net Proceeds from sale P290,000

Carrying amount P203,500
Gain on disposal P86,500

Exercise 7 – Investment property transfers

1. Inventory P35,000,000
Investment property P35,000,000
To record property reclassification

2. Building P35,000,000
Investment property P35,000,000
To record property reclassification

Depreciation expense P1,750,000

Accumulated depreciation P1,750,000
To record depreciation expense
 35,000,000
Depreciation expense = = P1,750,000
20 years

Exercise 8 – Investment property transfers

1. Cost model

25,000,000
Annual depreciation = = P1,388,888.89
18 years

P1,388,888.89 x 3 years = P4,166,666.67

Carrying amount = 25,000,000 – 4,166,666.67 = P20,833,333.33

Investment property P20,833,333.33

Building P20,833,333.33
To record reclassification of building

2. Fair value model

Investment property P23,500,000

Building P20,833,333.33
Gain on change in fair value P2,666,666.67
To record reclassification of building