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

(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.

8-3

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

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

P 4,000,000
4,800,000

Cost allocated to land (30% x 13,773,800)

Cost allocated to building (70% x 13,773,800)

P 4,132,140
P 9,641,660

(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

4,973,800
P13,773,800

8,200,000
4,200,000
8,200,000
4,200,000
200,000
200,000

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

Fair Value Model

(a)
Investment Property at December 31, 2012
Land
Building
Total Investment Property
(b)

8-5

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

Raymond Company
1.
Building Construction Fund Cash
Cash
2.

Building Expansion Fund Securities

Building Expansion Fund Cash

3.

Building Expansion Fund Securities

Interest Receivable Building Expansion Fund
Building Expansion Fund Cash

4.

Building Expansion Fund Cash

Dividend Income

5.

Building Expansion Fund Expenses

Building Expansion Fund Cash

83

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

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

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

7.

Building Expansion Fund Securities

Building Expansion Fund Cash

8.

Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities
Interest Income

9.

Building Expansion Fund Cash

Dividend Income

10.

Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11.

Buildings
Building Expansion Fund Cash

12.

Cash
Building Expansion Fund Cash

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

503,726
503,726

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
8-7

523,875
503,726
20,149
544,830
503,726
41,104

Dorina Company
a.
Entries for 2008 through 2013
7/01/08

Prepaid Life Insurance

Cash

120,000
120,000

12/31/08 Life Insurance Expense

Prepaid Life Insurance

60,000
60,000

84

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

06/30/09 Prepaid Life Insurance

Cash

120,000

12/31/09 Life Insurance Expense

Prepaid Life Insurance

120,000

06/30/10 Prepaid Life Insurance

Cash
12/31/10 Life Insurance Expense
Prepaid Life Insurance

120,000

06/30/11 Prepaid Life Insurance

Cash

120,000

12/31/11 Life Insurance Expense

Prepaid Life Insurance

120,000

120,000
120,000
120,000
120,000
120,000
120,000
120,000

12/31/11 Cash Surrender Value*

Life Insurance Expense

36,000
36,000

06/30/12 Prepaid Life Insurance

Cash

120,000

12/31/12 Life Insurance Expense

Prepaid Life Insurance

120,000

3/31/13

120,000
120,000

Cash Surrender Value

Life Insurance Expense

13,000

Life Insurance Expense

Prepaid Life Insurance

30,000

13,000
30,000

Receivable from Insurance Company

Prepaid Life Insurance
Cash Surrender Value
Gain on Insurance Settlement

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.

8-8

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

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

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

678,000
432,768

678,000
678,000

d.

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.

8-10

07/17/12 Cash (1,520,000 60,000)

Machinery Group Held For Sale
Gain on Sale of Machinery

(Invecargill Ltd.)
a.
08/01/12 Impairment Loss Equipment
Loss from Decline in NRV of Inventory
Accumulated Depr- Equipment
Inventory
b.

c.

Assets Held for Sale

Accumulated Depreciation
Impairment Loss
Plant
Equipment
Inventory
Goodwill
02/01/13 Cash (380,000 30,000)
Assets Held For Sale

86

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

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

(b)

3,500
3,500
36,000
2,500
31,500
70,000

Dec. 31 Asset Held for Sale

Recovery of Previous Impairment

2,500

Dec. 31 Impairment Loss

Asset Held for Sale

1,000

2,500
1,000

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

C
C
B
A
B
C
C
D
B
A
B
A
D
B
C
A
B
A
D
D
C
A
D

MC24
MC25

D
C

MC26
MC27
MC28
MC29

B
D
B
C

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

87