You are on page 1of 5

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) not shown in the financial statements


(f) Property, Plant and Equipment
(h) Property, Plant and Equipment, until consummation of lease
(i) Inventories
(j) Inventories
(k) Construction in Progress (Inventories)
(l) Property, Plant and Equipment
(m) Property, Plant and Equipment
(n) Property, Plant and Equipment
(p) Property, Plant and Equipment
(q) not shown, unless leased under finance lease (PPE)

8-2. (Sebastian Corporation)


a. Purchase price P 8,600,000
Commission to real estate agent 430,000
Costs of clearing the land (net of timber and gravel recovered
amounting to P65,000) 70,000
Total cost . P 9,100,000

b. Down payment P 4,000,000


Market value of shares issued (20,000 x 240) 4,800,000
Present value of non-interest bearing note issued
(2,000,000 x 2.4869) 4,973,800
Total cost of land and building P13,773,800

Cost allocated to land (30% x 13,773,800) P 4,132,140


Cost allocated to building (70% x 13,773,800) P 9,641,660

8-3. (Precious Realty Corporation)


1/2/13 Buildings 8,200,000
Accumulated Depreciation – Building Held as
Investment Property 4,200,000
Buildings Held as Investment Property 8,200,000
Accumulated Depreciation - Buildings 4,200,000

12/31/13 Depreciation Expense – Buildings 200,000


Accumulated Depreciation - Buildings 200,000

8-4. (Absolute Corporation)


Cost Model
(a) Investment Property at December 31, 2013
Land P 5,000,000
Building
Cost P20,000,000
Accumulated Depreciation
20,000,000/40 x 3 1,500,000 18,500,000
Total Investment Property P23,500,000

82
Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

(b) Amounts and Accounts Taken to Profit or Loss


Rent Revenue P 3,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P 1,960,000

Fair Value Model


(a) Investment Property at December 31, 2013
Land P 6,800,000
Building 20,000,000
Total Investment Property P26,800,000

(b) Amounts and Accounts Taken to Profit or Loss


Rent Revenue P3,000,000
Change in Fair Value of Investment Property
Land 800,000
Building 1,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P3,760,000

8-5. (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
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

83
Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

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) 1/2/13
Bond Sinking Fund Cash 503,726
Cash 503,726

6/30/13
Bond Sinking Fund Cash 523,875
Cash 503,726
Interest Income (503,726 x 4%) 20,149

12/31/13
Bond Sinking Fund Cash 544,830
Cash 503,726
Interest Income 41,104
4% ( 503,726 + 523,875) = 41,104

8-7. (Dorina Company)


(a) Entries for 2008 through 2013

7/01/08 Prepaid Life Insurance 120,000


Cash 120,000

12/31/08 Life Insurance Expense 60,000


Prepaid Life Insurance 60,000

06/30/09 Prepaid Life Insurance 120,000


Cash 120,000

12/31/09 Life Insurance Expense 120,000


Prepaid Life Insurance 120,000

06/30/10 Prepaid Life Insurance 120,000


Cash 120,000

12/31/10 Life Insurance Expense 120,000


Prepaid Life Insurance 120,000

06/30/11 Prepaid Life Insurance 120,000


Cash 120,000

12/31/11 Life Insurance Expense 120,000


Prepaid Life Insurance 120,000

12/31/11 Cash Surrender Value* 36,000


Life Insurance Expense 36,000

06/30/12 Prepaid Life Insurance 120,000


Cash 120,000

84
Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

12/31/12 Life Insurance Expense 120,000


Prepaid Life Insurance 120,000

Cash Surrender Value 13,000


Life Insurance Expense 13,000

3/31/13 Life Insurance Expense 30,000


Prepaid Life Insurance 30,000

Receivable from Insurance Company 4,000,000


Prepaid Life Insurance 30,000
Cash Surrender Value 49,000
Gain on Insurance Settlement 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) P10,000,000 x 0.3220 = P3,220,000


(b) Interest Income in 2012 = 12% x P3,220,000 = P386,400
(c) 1/1/12 Advances to Officers 3,220,000
Prepaid Compensation Expense 6,780,000
Cash 10,000,000

12/31/12 Advances to Officers 386,400


Interest Revenue 386,400

Compensation Expense 678,000


Prepaid Compensation Expense 678,000
6,780,000/10 = 678,000

12/31/13 Advances to Officers 432,768


Interest Revenue 432,768
(3,220,000 + 386,400) x 12% = 432,768

Compensation Expense 678,000


Prepaid Compensation Expense 678,000

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


4,039,168

8-9. (Patriarch, Inc.)


(a) 12/31/12 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) 07/17/13 Cash (1,520,000 – 60,000) 1,460,000


Machinery Group Held For Sale 1,400,000
Gain on Sale of Machinery 60,000

85
Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

8-10. (Invecargill Ltd.)


(a) 08/01/12 Impairment Loss – Equipment 15,000
Loss from Decline in NRV of Inventory 5,000
Accumulated Depr- Equipment 15,000
Inventory 5,000

(b) Assets Held for Sale 350,000


Accumulated Depreciation 95,000
Impairment Loss 30,000
Plant 220,000
Equipment 160,000
Inventory 75,000
Goodwill 20,000

(c) 02/01/13 Cash (380,000 – 30,000) 350,000


Assets Held For Sale 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
Accumulated Depreciation 3,500

Asset Held for Sale 36,000


Impairment Loss 2,500
Accumulated Depreciation 31,500
Equipment 70,000

Dec. 31 Asset Held for Sale 2,500


Recovery of Previous Impairment 2,500

(b) Dec. 31 Impairment Loss 1,000


Asset Held for Sale 1,000

MULTIPLE CHOICE
MC1 C MC9 B
MC2 C MC10 A
MC3 B MC11 B
MC4 A MC12 A
MC5 B MC13 D
MC6 C MC14 B
MC7 C MC15 C
MC8 D MC16 A

MC17 B 10M + 20M = 30M


MC18 A Revaluation surplus is credited; transfer is from owner-occupied property.
MC19 D 20,000,000 – 15,000,000
MC20 D 18,000,000 x 39/40 = 17,550,000; depreciation = 18,000,000/40 = 450,000
MC21 C FV = 20,000,000; gain = 20,000,000 – 18,000,000 = 2,000,000
MC22 A 110,000 – (115,000 – 80,000) = 75,000
MC23 D 9.0M – 1.5M = 7.5M which is lower than carrying amount of 8.0M
MC24 D (9,200,000 – 1,300,000) – 7,500,000 = 400,000
MC25 C 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
MC26 B 100,000 + (200,000 – 160,000) = 140,000
MC27 D 40,000 – (108,000 – 87,000) – 6,000 = 13,000
MC28 B 2,250,000 + 450,000 + 75,000 + 150,000 – 25,000 = 2,900,000
MC29 C 5,000,000/ 5.11 = 978,500

86

You might also like