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Investment Property Answer Key
Investment Property Answer Key
INVESTMENT PROPERTY
- Property held by owner or by the lessee under a finance lease to earn rentals or capital appreciation or both.
- Investment property includes the following:
a. Land held for long-term capital appreciation.
b. Land held for a currently undermined use.
c. Building owned by the reporting entity leased out under an operating lease.
d. Building that is vacant but is held to be leased out under an operating lease.
e. Property that is being constructed or developed for future use as investment property.
- Only land and building can qualify as investment property.
The property held by an owner for use in the production or supply of goods or services, or for administrative purposes is known as
owner-occupied property.
The board of directors decided that instead of selling the condominium, the company would hold this property for purposes of
earning rentals targeting the high-ranking business officers around BGC and Makati.
The construction was completed and in service as of January 1, 2021. The cost of the construction was P 50,000,000.
The property has a useful life of 25 years with a residual value of P 5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2021 55,000,000
December 31, 2022 53,000,000
December 31, 2023 60,000,000
Required:
Prepare journal entries for 2021, 2022 and 2023:
a. The investment property is accounted for under the cost model.
b. The investment property is accounted for under the fair value model.
Measurement of transfers
1. Transfers between investment property, owner-occupied property and inventory, initially measured at cost, shall be made at
carrying amount.
2. Transfer from investment property carried at fair value to owner-occupied property or inventory shall be accounted at fair
value.
3. Transfer of owner-occupied property to investment property to be carried at fair value, any difference between carrying
amount and fair value shall be accounted for as revaluation of PPE.
4. Transfer of inventory to investment property to be carried at fair value, remeasurement to fair value shall be included in
profit or loss.
5. Completed investment property to be carried at fair value, difference between fair value and carrying amount shall be
included in profit or loss.
The policy was dated January 1, 2020 and carried the following cash surrender value:
Required: Prepare journal entries from January 1, 2020 to July 31, 2024.
References
Valix, C. T., Peralta, J. F., & Valix, C. A. (2020). Intermediate Accounting Volume One. GIC Enterprises & Co., Inc.
2
Accounting for Trade and Other Receivables FAR 3
ANSWERS:
Problem 1
2. a. The property held by a subsidiary in the ordinary course of business is included in inventory.
b. The property held by parent for use in production is owner-occupied property and therefore part of property, plant and
equipment.
c. The land leased by parent to a subsidiary under an operating lease is owner-occupied property for purposes of
consolidated financial statements. However, from the perspective of separate financial statements of the parent, the land is
an investment property.
d. The land held for future factory site is owner-occupied property and therefore part of property, plant and equipment.
e. The machinery leased out to an unrelated party is part of property, plant and equipment because investment property
includes only land and building, and not movable property like machinery.
Problem 2
Cost Model
Depreciation 1,800,000
Accumulated depreciation 1,800,000
(50,000,000 – 5,000,000 / 25)
Problem 3
2020
Jan. 1 Life Insurance 60,000
Cash 60,000
2021
Jan. 1 Life Insurance 60,000
Cash 60,000
3
Accounting for Trade and Other Receivables FAR 3
2022
Jan. 1 Life Insurance 60,000
Cash 60,000
2023
Jan. 1 Life Insurance 60,000
Cash 60,000
2024
Jan. 1 Life Insurance 60,000
Cash 60,000