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

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)

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)

1/2/13
Buildings
Accumulated Depreciation Building Held as
Investment Property
Buildings Held as Investment Property
Accumulated Depreciation - Buildings
12/31/13

8-4.

P 8,600,000
430,000

Depreciation Expense Buildings

Accumulated Depreciation - Buildings

(Absolute Corporation)
Cost Model
(a)
Investment Property at December 31, 2013
Land
Building

82

4,973,800
P13,773,800

8,200,000
4,200,000

200,000

8,200,000
4,200,000

200,000

P 5,000,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
Cost
Accumulated Depreciation
20,000,000/40 x 3
Total Investment Property

(b)

P20,000,000
1,500,000

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, 2013
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

6.

Building Expansion Fund Cash

Interest Receivable Building Expansion Fund

83

18,500,000
P23,500,000

P 3,000,000
(500,000)
(200,000)
(120,000)
(340,000)
P 1,960,000

P 6,800,000
20,000,000
P26,800,000

P3,000,000
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
Interest Income

8-6.

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

(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)

1/2/13
Bond Sinking Fund Cash
Cash

503,726
503,726

6/30/13
Bond Sinking Fund Cash
Cash
Interest Income (503,726 x 4%)
12/31/13
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
7/01/12

Prepaid Life Insurance

Cash

120,000

12/31/12 Life Insurance Expense

Prepaid Life Insurance

60,000

06/30/13 Prepaid Life Insurance

120,000

120,000

60,000

84

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

120,000

12/31/13 Life Insurance Expense

Prepaid Life Insurance

120,000

06/30/14 Prepaid Life Insurance

Cash

120,000

12/31/14 Life Insurance Expense

Prepaid Life Insurance

120,000

06/30/15 Prepaid Life Insurance

Cash

120,000

12/31/15 Life Insurance Expense

Prepaid Life Insurance

120,000

120,000

120,000

120,000

12/31/15 Cash Surrender Value*

Life Insurance Expense

120,000

36,000
36,000

06/30/16 Prepaid Life Insurance

Cash

120,000

12/31/16 Life Insurance Expense

Prepaid Life Insurance

120,000

3/31/17

120,000

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) 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.
8-8.

(Solidbank)
(a)
(b)
(c)

P10,000,000 x 0.3220 = P3,220,000

Interest Income in 2012 = 12% x P3,220,000 = P386,400
1/1/12 Advances to Officers
3,220,000

85

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
Prepaid Compensation Expense
Cash
12/31/12 Advances to Officers
Interest Revenue
Compensation Expense
Prepaid Compensation Expense
6,780,000/10 = 678,000

6,780,000

10,000,000

386,400
386,400
678,000

678,000

12/31/13 Advances to Officers

432,768
Interest Revenue
(3,220,000 + 386,400) x 12% = 432,768
Compensation Expense
Prepaid Compensation Expense
d.

8-9.

8-10.

07/17/13 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)

678,000

678,000

Amortized Cost at December 31, 2013 = 3220,000 + 386,400 + 432,768 =

4,039,168

(Patriarch, Inc.)
(a)
12/31/12 Machinery Group Held For Sale
Accumulated Depreciation Machinery
Impairment Loss Machinery
Machinery
Machinery Tools
Machinery Parts
(b)

432,768

Assets Held for Sale

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

1,400,000
1,200,000
200,000
2,200,000
380,000
220,000
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

8-11.
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)
3,500

86

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
Accumulated Depreciation
Asset Held for Sale
Impairment Loss
Accumulated Depreciation
Equipment

(b)

MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8

C
C
B
A
B
C
C
D

MC17
MC18
MC19
MC20
MC21
MC22
MC23
MC24
MC25

B
A
D
D
C
A
D
D
C

MC26
MC27
MC28
MC29

B
D
B
C

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

Dec. 31 Asset Held for Sale

Recovery of Previous Impairment

2,500

Dec. 31 Impairment Loss

Asset Held for Sale

1,000

70,000

2,500

1,000

MULTIPLE CHOICE
MC9
B
MC10
A
MC11
B
MC12
A
MC13
D
MC14
B
MC15
C
MC16
A
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
9.0M 1.5M = 7.5M which is lower than carrying amount of 8.0M
(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