CHAPTER 8 INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS AND NONCURRENT ASSETS HELD FOR SALE PROBLEMS 8-1 Investment

Property (a), (b), (c), (e), (g), (o), (r) with option to or not to report as investment property (d) (f) (h) (i) (j) (k) (l) (m) (n) (p) (q) 8-2 not shown in the financial statements Property, Plant and Equipment Property, Plant and Equipment, until consummation of lease Inventories Inventories Construction in Progress (Inventories) Property, Plant and Equipment Property, Plant and Equipment Property, Plant and Equipment Property, Plant and Equipment not shown, unless leased under finance lease (PPE) P 8,600,000 430,000 70,000 P 9,100,000 P 4,000,000 4,800,000 4,973,800 P13,773,800 P 4,132,140 P 9,641,660 8,200,000 4,200,000 8,200,000 4,200,000 200,000 200,000

(Sebastian Corporation) a. Purchase price Commission to real estate agent Costs of clearing the land (net of timber and gravel recovered amounting to P65,000) Total cost . b. Down payment Market value of shares issued (20,000 x 240) Present value of non-interest bearing note issued (2,000,000 x 2.4869) Total cost of land and building Cost allocated to land (30% x 13,773,800) Cost allocated to building (70% x 13,773,800)

8-3

(Precious Realty Corporation) 1/2/12 Buildings Accumulated Depreciation – Building Held as Investment Property Buildings Held as Investment Property Accumulated Depreciation - Buildings 12/31/12 Depreciation Expense – Buildings Accumulated Depreciation - Buildings

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

8-4

Absolute Corporation Cost Model (a) Investment Property at December 31, 2012 Land Building Cost Accumulated Depreciation 20,000,000/40 x 3 Total Investment Property (b) Amounts and Accounts Taken to Profit or Loss Rent Revenue Depreciation Expense Administrative and Security Salaries Property Taxes Maintenance Profit

P 5,000,000 P20,000,000 1,500,000 18,500,000 P23,500,000 P 3,000,000 (500,000) (200,000) (120,000) (340,000) P1,960,000

Fair Value Model (a) Investment Property at December 31, 2012 Land Building Total Investment Property (b) Amounts and Accounts Taken to Profit or Loss Rent Revenue Change in Fair Value of Investment Property Land Building Depreciation Expense Administrative and Security Salaries Property Taxes Maintenance Profit

P6,800,000 20,000,000 P26,800,000 P 3,000,000 800,000 1,000,000 (500,000) (200,000) (120,000) (340,000) P3,760,000

8-5

Raymond Company 1. Building Construction Fund Cash Cash 2. 3. Building Expansion Fund Securities Building Expansion Fund Cash Building Expansion Fund Securities Interest Receivable – Building Expansion Fund Building Expansion Fund Cash Building Expansion Fund Cash Dividend Income Building Expansion Fund Expenses Building Expansion Fund Cash

4. 5.

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

6.

Building Expansion Fund Cash Interest Receivable – Building Expansion Fund Interest Income Building Expansion Fund Securities Building Expansion Fund Cash Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities Interest Income Building Expansion Fund Cash Dividend Income Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities Buildings Building Expansion Fund Cash Cash Building Expansion Fund Cash

7. 8.

9. 10.

11. 12. 8-6

Cordero Corporation a. Required Semiannual Deposit = P15,000,000/ FV of annuity of 1 discounted at 4% for 20 periods = P15,000,000 / 29.7781 = P503,726 b. 1/2/12 Bond Sinking Fund Cash Cash 6/30/12 Bond Sinking Fund Cash Cash Interest Income (503,726 x 4%) 12/31/12 Bond Sinking Fund Cash Cash Interest Income 4% ( 503,726 + 523,875) = 41,104 503,726 503,726 523,875 503,726 20,149 544,830 503,726 41,104

8-7

Dorina Company a. Entries for 2008 through 2013 7/01/08 Prepaid Life Insurance Cash 120,000 120,000 60,000 60,000

12/31/08 Life Insurance Expense Prepaid Life Insurance

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

06/30/09 Prepaid Life Insurance Cash 12/31/09 Life Insurance Expense Prepaid Life Insurance 06/30/10 Prepaid Life Insurance Cash 12/31/10 Life Insurance Expense Prepaid Life Insurance 06/30/11 Prepaid Life Insurance Cash 12/31/11 Life Insurance Expense Prepaid Life Insurance 12/31/11 Cash Surrender Value* Life Insurance Expense 06/30/12 Prepaid Life Insurance Cash 12/31/12 Life Insurance Expense Prepaid Life Insurance Cash Surrender Value Life Insurance Expense 3/31/13 Life Insurance Expense Prepaid Life Insurance Receivable from Insurance Company Prepaid Life Insurance Cash Surrender Value Gain on Insurance Settlement

120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 36,000 36,000 120,000 120,000 120,000 120,000 13,000 13,000 30,000 30,000 4,000,000 30,000 49,000 3,921,000

*The cash surrender value of life insurance may be recognized on the anniversary date (June 30, 2011 and every June 30 thereafter). No proportionate adjustment, however, is necessary at year end because there is no actual increase in cash surrender between anniversary dates. b. If the president or his heirs were the beneficiaries of the policy, the premiums paid shall be charged to employees benefit expense and no cash surrender value will be set up by the company. Solidbank a. b. c. P10,000,000 x 0.3220 = P3,220,000 Interest Income in 2011 = 12% x P3,220,000 = P386,400 1/1/11 Advances to Officers 3,220,000 Prepaid Compensation Expense 6,780,000 Cash 10,000,000

8-8

85

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

12/31/11 Advances to Officers Interest Revenue

386,400 386,400 678,000 432,768

Compensation Expense 678,000 Prepaid Compensation Expense 6,780,000/10 = 678,000 12/31/ Advances to Officers 432,768 Interest Revenue (3,220,000 + 386,400) x 12% = 432,768 Compensation Expense Prepaid Compensation Expense d. 678,000

678,000

8-9

Amortized Cost at December 31, 2012 = 3220,000 + 386,400 + 432,768 = 4,039,168 Patriarch, Inc. a 12/31/11 Machinery Group Held For Sale 1,400,000 Accumulated Depreciation – Machinery 1,200,000 Impairment Loss – Machinery 200,000 Machinery 2,200,000 Machinery Tools 380,000 Machinery Parts 220,000 b. 07/17/12 Cash (1,520,000 – 60,000) Machinery Group Held For Sale Gain on Sale of Machinery 1,460,000 1,400,000 60,000 15,000 5,000 15,000 5,000 350,000 95,000 30,000 220,000 160,000 75,000 20,000 350,000 350,000

8-10

(Invecargill Ltd.) a. 08/01/12 Impairment Loss – Equipment Loss from Decline in NRV of Inventory Accumulated Depr- Equipment Inventory b. Assets Held for Sale Accumulated Depreciation Impairment Loss Plant Equipment Inventory Goodwill 02/01/13 Cash (380,000 – 30,000) Assets Held For Sale

c.

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

8-11 Correction: Change March 1 to March 31 Cost = 42,000 ÷(3/5) = 70,000 Accumulated Depreciation = 70,000 – 42,000 = 28,000 (a) Mar. 31 Depreciation Expense (14,000 x 3/12) Accumulated Depreciation Asset Held for Sale Impairment Loss Accumulated Depreciation Equipment Dec. 31 Asset Held for Sale Recovery of Previous Impairment (b) Dec. 31 Impairment Loss Asset Held for Sale MULTIPLE CHOICE MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10 MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 MC21 MC22 MC23 MC24 MC25 MC26 MC27 MC28 MC29 C C B A B C C D B A B A D B C A B A D D C A D D C B D B C 3,500 3,500 36,000 2,500 31,500 70,000 2,500 2,500 1,000 1,000

10M + 20M = 30M Revaluation surplus is credited; transfer is from owner-occupied property. 20,000,000 – 15,000,000 18,000,000 x 39/40 = 17,550,000; depreciation = 18,000,000/40 = 450,000 FV = 20,000,000; gain = 20,000,000 – 18,000,000 = 2,000,000 110,000 – (115,000 – 80,000) = 75,000 9,000,000 – 1,500,000 = 7,500,000 which is lower than carrying amount of P8,000,000. (9,200,000 – 1,300,000) – 7,500,000 = 400,000 2,000,000 x 0.7972 = 1,594,400 1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 = 1,690,064 100,000 + (200,000 – 160,000) = 140,000 40,000 – (108,000 – 87,000) – 6,000 = 13,000 2,250,000 + 450,000 + 75,000 + 150,000 – 25,000 = 2,900,000 5,000,000/ 5.11 = 978,500

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