Finished-problems-intacc-3-investment-property
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QUESTIONS FOR INVESTMENT PROPERTY PROBLEM A ALBERT COMPANY had the following assets at December 31, 2020: Acquisition Cost
Fair Value @ December 31, 2020
● A 300-sq.m. tract of land the company acquired on January 01, 2019 which it intends to hold for capital appreciation purposes.
P5,000,000
P6,500,000
● A 150-sq.m. tract of land the company acquired on September 30, 2019 which is currently held for an undetermined future use by the company.
P2,700,000
P3,400,000
● A building acquired on January 01, 2017, currently being used as the headquarters of the company.
P15,000,000
P16,500,000
● A building acquired on January 01, 2017, currently being rented out to a different entity under an operating lease.
P4,500,000
P4,200,000
● Machineries acquired on July 01, 2018, currently leased out under an operating lease to a different entity.
P2,100,000
P2,500,000
The company uses the cost model for its property, plant, and equipment and uses the straight-line depreciation method with buildings having 30 years of useful life and machineries having 7 years of useful life. The company uses the fair value model for its investment property. 1. How much should be presented as Property, Plant, and Equipment as of December 31, 2020? a. P15,700,000
c. P13,000,000
b. P16,900,000
d. P14,350,000
e. None of the choices
2. How much should be presented as Investment Property as of December 31, 2020? a. P14,100,000
c. P10,700,000
b. P16,600,000
d. P13,200,000
e. None of the choices
PROBLEM B The following reclassifications to investment property were done by FEARLESS COMPANY: ● An asset previously classified as inventory with a carrying amount of P7,800,000 is reclassified as investment property. The fair value on the reclassification date is P8,250,000. ● An asset previously classified as PPE with a cost of P55,000,000 and accumulated depreciation of P27,000,000 is reclassified as investment property. The fair value on the reclassification date is P29,500,000. ● An asset previously classified as PPE with cost of P6,500,000 and accumulated depreciation of P1,200,000 is reclassified as investment property. The fair value on the reclassification date is P5,725,000. The company uses the fair value model for investment property. 3. How much should be recognized in profit or loss as a result of the above? a. P2,375,000
c. P1,925,000
b. P450,000
d. 0
e. None of the choices
4. How much should be recognized as revaluation surplus as a result of the above? a. P2,375,000
c. P1,925,000
b. P450,000
d. 0
e. None of the choices
PROBLEM C LOVER COMPANY leases out its 6-storey apartment building located at Cornelia Street to various tenants under operating leases. It provides ancillary services to the tenants which are deemed insignificant to the lease arrangement as a whole. The cost of the building after it was finished being constructed on January 01, 2018 was P35,000,000. The company estimates that the building has a useful life of 50 years. The fair value of the building on December 31, 2020 P33,500,000. The company uses the cost model for property, plant, and equipment and the fair value model for investment property. 5. How much is the depreciation expense for the year ended December 31, 2020? a. P700,000
c. P658,000
b. P670,000
d. 0
PROBLEM D CRUZ COMPANY purchased an investment property on January 1, 2019 for P2,200,000. The property had a useful life of 40 years. On December 31, 2021, the property was sold for P2,900,000 and had a fair value of P3,000,000. The company uses the cost model to account for the investment property. 6. What is the gain or loss to be recognized for the year ended December 31, 2021 regarding the disposal of the property? a. P865,000 gain
c. P100,000 gain
b. P810,000 gain
d. P700,000 gain
PROBLEM E SHALLOW COMPANY owns three properties which are classified as investment properties. Initial Cost Fair Value Fair Value (12/31/2021) (12/31/2022) Property 1 P2,700,000 P3,200,000 P3,500,000 Property 2 P3,450,000 P3,050,000 P2,850,000 Property 3 P3,300,000 P3,850,000 P3,600,000 Each property was acquired in 2018 with a useful life of 25 years. The company uses the fair value model to account for its investment properties. 7. What is the gain or loss to be recognized for the year ended December 31, 2022? a. P189,000 loss
c. P300,000 gain
b. P150,000 loss
d. P450,000 loss
PROBLEM F REPUTATION COMPANY acquired the following assets on January 01, 2020: ● REPUTATION acquired a tract of land by paying P7,000,000 as down payment and issuing a non-interest-bearing note for the balance of P3,000,000 payable in three equal annual installments beginning December 31, 2020. The imputed interest rate is 10%. The land is to be held as investment property. ● REPUTATION acquired a building by issuing 20,000 ordinary shares with a par value of P30 each and a fair value of P60 each. The building is to be occupied by the sales department.
● REPUTATION exchanged its own equipment with a carrying value of P420,000 and a fair value of P450,000 for an equipment owned by SPEAKNOW with a carrying value of P550,000 and a fair value of P620,000. REPUTATION also paid P170,000 cash to SPEAKNOW during the exchange. 8. How much should be recognized as investment property on January 01, 2020? a. P10,000,000
c. P1,820,000
b. P9,486,900
d. P10,106,900
9. How much should be recognized as property, plant, and equipment on January 01, 2020? a. P10,000,000
c. P1,820,000
b. P9,486,900
d. P10,106,900
PROBLEM G Among the assets of Dwight Company on December 31, 2019 are the following: Land held for long-term capital appreciation
3,500,000
Land held for a currently undetermined future use
5,700,000
Building included in inventory Lang held for long-term speculation Equipment leased out under an operating lease
16,600,000 1,400,000 500,000
Building rented out under finance lease
10,900,000
Land owned by the entity and leased out under an operating lease
7,800,000
Equipment leased under a finance lease
600,000
Equipment leased under a finance lease and leased out under a finance lease
700,000
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 Equipment leased out under finance lease
11,800,000 400,000
Lang held for future plant site
5,600,000
Building-currently vacant but is held to be leased out under various operating leases
7,100,000
Building being constructed on behalf of third parties
11,100,000
Warehouse-currently being developed - to be used as investment property
9,700,000
Building leased under operating lease
3,800,000
10. How much is classified as Investment Property? a. 41,800,000 c. 38,000,000 b. 51,500,000 d. 47,700,000 PROBLEM H In 2013, KDC started the construction of a mall which is to be leased out under various operating leases. The construction was completed at the end of 2014 at a total cost of Php 29,370,874. KDC’s operations started at the beginning of 2015. The mall has an estimated useful life of 20 years. KDC uses the cost model and the straight-line method of depreciation. On December 31, 2016, the mall was estimated to have a fair value of Php 28,000,000. The mall has a total leasable space of 1,141 sq.meters. However, a 5 sq.meter-space is used as office for administering the mall, which cannot be sold separately. 11. How much is presented as investment property in KDC’s December 31, 2016 financial statements? (Round off your answer to the nearest whole number.) a. 28,000,000 c. 26,317,950 b. 26,433,787 d. 0 Problem I. Bump Ahead Bookings, Inc. owns an office building that is being leased out to various companies. Bump Ahead is required to provide security and maintenance services under the lease contracts. The building was acquired 2 years ago at a total cost of Php 6,000,000. The accumulated depreciation at the beginning of the year is Php 480,000.
12. How much would be shown as Investment Property in Bump Ahead Bookings, Inc.’s year-end financial statements? a. 5,250,000 c. 6,000,000 b. 5,280,000 d. 0 13. Assuming that it owns a hotel instead of an office building with the same cost and accumulated depreciation, and such services are significant to their hotel business, how much would be shown as Investment Property in Bump Ahead Bookings, Inc.’s year-end financial statements? c. 5,250,000 c. 6,000,000 d. 5,280,000 d. 0
Fair Value @ December 31, 2020
● A 300-sq.m. tract of land the company acquired on January 01, 2019 which it intends to hold for capital appreciation purposes.
P5,000,000
P6,500,000
● A 150-sq.m. tract of land the company acquired on September 30, 2019 which is currently held for an undetermined future use by the company.
P2,700,000
P3,400,000
● A building acquired on January 01, 2017, currently being used as the headquarters of the company.
P15,000,000
P16,500,000
● A building acquired on January 01, 2017, currently being rented out to a different entity under an operating lease.
P4,500,000
P4,200,000
● Machineries acquired on July 01, 2018, currently leased out under an operating lease to a different entity.
P2,100,000
P2,500,000
The company uses the cost model for its property, plant, and equipment and uses the straight-line depreciation method with buildings having 30 years of useful life and machineries having 7 years of useful life. The company uses the fair value model for its investment property. 1. How much should be presented as Property, Plant, and Equipment as of December 31, 2020? a. P15,700,000
c. P13,000,000
b. P16,900,000
d. P14,350,000
e. None of the choices
2. How much should be presented as Investment Property as of December 31, 2020? a. P14,100,000
c. P10,700,000
b. P16,600,000
d. P13,200,000
e. None of the choices
PROBLEM B The following reclassifications to investment property were done by FEARLESS COMPANY: ● An asset previously classified as inventory with a carrying amount of P7,800,000 is reclassified as investment property. The fair value on the reclassification date is P8,250,000. ● An asset previously classified as PPE with a cost of P55,000,000 and accumulated depreciation of P27,000,000 is reclassified as investment property. The fair value on the reclassification date is P29,500,000. ● An asset previously classified as PPE with cost of P6,500,000 and accumulated depreciation of P1,200,000 is reclassified as investment property. The fair value on the reclassification date is P5,725,000. The company uses the fair value model for investment property. 3. How much should be recognized in profit or loss as a result of the above? a. P2,375,000
c. P1,925,000
b. P450,000
d. 0
e. None of the choices
4. How much should be recognized as revaluation surplus as a result of the above? a. P2,375,000
c. P1,925,000
b. P450,000
d. 0
e. None of the choices
PROBLEM C LOVER COMPANY leases out its 6-storey apartment building located at Cornelia Street to various tenants under operating leases. It provides ancillary services to the tenants which are deemed insignificant to the lease arrangement as a whole. The cost of the building after it was finished being constructed on January 01, 2018 was P35,000,000. The company estimates that the building has a useful life of 50 years. The fair value of the building on December 31, 2020 P33,500,000. The company uses the cost model for property, plant, and equipment and the fair value model for investment property. 5. How much is the depreciation expense for the year ended December 31, 2020? a. P700,000
c. P658,000
b. P670,000
d. 0
PROBLEM D CRUZ COMPANY purchased an investment property on January 1, 2019 for P2,200,000. The property had a useful life of 40 years. On December 31, 2021, the property was sold for P2,900,000 and had a fair value of P3,000,000. The company uses the cost model to account for the investment property. 6. What is the gain or loss to be recognized for the year ended December 31, 2021 regarding the disposal of the property? a. P865,000 gain
c. P100,000 gain
b. P810,000 gain
d. P700,000 gain
PROBLEM E SHALLOW COMPANY owns three properties which are classified as investment properties. Initial Cost Fair Value Fair Value (12/31/2021) (12/31/2022) Property 1 P2,700,000 P3,200,000 P3,500,000 Property 2 P3,450,000 P3,050,000 P2,850,000 Property 3 P3,300,000 P3,850,000 P3,600,000 Each property was acquired in 2018 with a useful life of 25 years. The company uses the fair value model to account for its investment properties. 7. What is the gain or loss to be recognized for the year ended December 31, 2022? a. P189,000 loss
c. P300,000 gain
b. P150,000 loss
d. P450,000 loss
PROBLEM F REPUTATION COMPANY acquired the following assets on January 01, 2020: ● REPUTATION acquired a tract of land by paying P7,000,000 as down payment and issuing a non-interest-bearing note for the balance of P3,000,000 payable in three equal annual installments beginning December 31, 2020. The imputed interest rate is 10%. The land is to be held as investment property. ● REPUTATION acquired a building by issuing 20,000 ordinary shares with a par value of P30 each and a fair value of P60 each. The building is to be occupied by the sales department.
● REPUTATION exchanged its own equipment with a carrying value of P420,000 and a fair value of P450,000 for an equipment owned by SPEAKNOW with a carrying value of P550,000 and a fair value of P620,000. REPUTATION also paid P170,000 cash to SPEAKNOW during the exchange. 8. How much should be recognized as investment property on January 01, 2020? a. P10,000,000
c. P1,820,000
b. P9,486,900
d. P10,106,900
9. How much should be recognized as property, plant, and equipment on January 01, 2020? a. P10,000,000
c. P1,820,000
b. P9,486,900
d. P10,106,900
PROBLEM G Among the assets of Dwight Company on December 31, 2019 are the following: Land held for long-term capital appreciation
3,500,000
Land held for a currently undetermined future use
5,700,000
Building included in inventory Lang held for long-term speculation Equipment leased out under an operating lease
16,600,000 1,400,000 500,000
Building rented out under finance lease
10,900,000
Land owned by the entity and leased out under an operating lease
7,800,000
Equipment leased under a finance lease
600,000
Equipment leased under a finance lease and leased out under a finance lease
700,000
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 Equipment leased out under finance lease
11,800,000 400,000
Lang held for future plant site
5,600,000
Building-currently vacant but is held to be leased out under various operating leases
7,100,000
Building being constructed on behalf of third parties
11,100,000
Warehouse-currently being developed - to be used as investment property
9,700,000
Building leased under operating lease
3,800,000
10. How much is classified as Investment Property? a. 41,800,000 c. 38,000,000 b. 51,500,000 d. 47,700,000 PROBLEM H In 2013, KDC started the construction of a mall which is to be leased out under various operating leases. The construction was completed at the end of 2014 at a total cost of Php 29,370,874. KDC’s operations started at the beginning of 2015. The mall has an estimated useful life of 20 years. KDC uses the cost model and the straight-line method of depreciation. On December 31, 2016, the mall was estimated to have a fair value of Php 28,000,000. The mall has a total leasable space of 1,141 sq.meters. However, a 5 sq.meter-space is used as office for administering the mall, which cannot be sold separately. 11. How much is presented as investment property in KDC’s December 31, 2016 financial statements? (Round off your answer to the nearest whole number.) a. 28,000,000 c. 26,317,950 b. 26,433,787 d. 0 Problem I. Bump Ahead Bookings, Inc. owns an office building that is being leased out to various companies. Bump Ahead is required to provide security and maintenance services under the lease contracts. The building was acquired 2 years ago at a total cost of Php 6,000,000. The accumulated depreciation at the beginning of the year is Php 480,000.
12. How much would be shown as Investment Property in Bump Ahead Bookings, Inc.’s year-end financial statements? a. 5,250,000 c. 6,000,000 b. 5,280,000 d. 0 13. Assuming that it owns a hotel instead of an office building with the same cost and accumulated depreciation, and such services are significant to their hotel business, how much would be shown as Investment Property in Bump Ahead Bookings, Inc.’s year-end financial statements? c. 5,250,000 c. 6,000,000 d. 5,280,000 d. 0
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