GOVERNMENT GRANT_INVESTMENT PROPERTY

2020-SPN AiRnotes

Grant related to asset (Gross and Net presentation)

1. On 1 January 20x1, CSD received cash of 16,000,000 from a local government to be used in constructing
a building. The construction was completed on 31 Dec 20x1 for a total cost of 40,000,000. The building
will be depreciated over 20 years.
Required:
a. If CSD uses the gross presentation of government grants. How much is the carrying amount of the
deferred income for the government grant on 31 Dec 20x5?
b. If CSD uses the net presentation of government grants. How much is the carrying amount of the
deferred income from the government grant on 31 Dec 20x5?
c. If CSD uses the gross presentation of government grants, how much is the carrying amount of the
building on 31 Dec 20x1?
d. If CSD uses the net presentation of government grants, how much is the carrying amount of the
building on 31 Dec 20x1?

Grant related to income (Gross and Net presentation)

2. On 1 January 20x1, MHC received cash of 16,000,000 from a local government to be used to defray
safety and other hazard-related costs over a 5-year period. It was estimated that such costs will total
32,000,000 over the next 5 years. In 20x1 and 20x2, actual costs of safety and hazard-related costs
amounted to 4,000,000 and 4,800,000, respectively.
Required:
a. If MHC uses the gross presentation of government grants. How much is the carrying amount of the
deferred income for the government grant on 31 Dec 20x1?
b. If MHC uses the net presentation of government grants. How much is the carrying amount of the
deferred income from the government grant on 31 Dec 20x1?
c. If MHC uses the gross presentation of government grants, how much safety expense is recognized
in 20x1?
d. If MHC uses the net presentation of government grants, how much safety expense is recognized in
20x1?

Grant related to non-depreciable asset

3. On 1 January 20x1, UIC received land from the government with the condition that a factory building
should be constructed on it. The fair value of the land was estimated at 20,000,000. The construction
of the factory building was completed on 1 Jan 20x2, for a total cost of 80,000,000. The building will be
depreciated using SYD over a useful life of 10 years. The estimated residual value is 8,000,000. UIC uses
the gross presentation of government grants. How much is the carrying amount of deferred income
from the government grant on 31 Dec 20x2?

Compensation for losses incurred (Financial aid)

4. On 1 Jan 20x1, various properties of ADC were destroyed due to flood. It was estimated that the cost
of the destroyed properties amounted to 60,000,000. On 1 July 20x1, ADC received 8,000,000 for the
government as a financial aid. ADC estimates that it would take about 5 years before it can recover
from the loss. How much income from government grant recognized in 20x1?

Inventory method
5. The small tools of AMC has a balance of 600,000 as of January 1, 20x1. Acquisitions of small tools during
the period totaled 240,000 and proceeds from sale of small tools retired and/or replaced totaled
100,000. The annual asset count on December 31, 20x1 revealed a balance of small tools of 440,000.
How much is the depreciation expense under the inventory method?

Forgivable loans
6. On 1 January 20x1, because of an exemplary accomplishment that brought international recognition
to the community, the government waived the repayment of CTC loan payable with a carrying amount
of 800,000 and remaining term of 4 years. How much income from government grant is recognized in
20x1?
Loans at below market-interest rate
7. On 1 January 20x1, BLC was granted by the government a 3-year, zero-interest loan of 4,000,000
payable on 31 Dec 20x3. Prevailing interest rate for this type of loan is 10%. How much is the income
from government grant recognized in 20x1?
Repayment of grant related to income
8. On January 1, 20x1, SHC received cash of 16,000,000 from the government to be used to defray safety
and other hazard-related costs over a 5-year period. It was estimated that such costs will accumulate
to 32,000,000 over the next 5 years. In 20x1 and 20x2, actual costs of safety and other hazard-related
costs amounted to 4,000,000 and 4,800,000, respectively. On 1 January 20x3, the government

Albert I. Rivera, CPA, MBA, CRA 1 of 4

GOVERNMENT GRANT_INVESTMENT PROPERTY
2020-SPN AiRnotes

demanded repayment of the 16,000,000 given as grant in 20x1. How much is the loss on repayment of
government grant recognized in 20x3?
Repayment of grant related to asset
9. On January 1, 20x1, DDS received cash of 16,000,000 from the government to be used in constructing
a building. The construction was completed on 31 Dec 20x1 for a total cost of 40,000,000. The building
is depreciated over 20 years. On 1 January 20x4, the government demanded repayment of the
16,000,000 grant given in 20x1. How much is the loss on repayment of government grant recognized
in 20x4?
Classification as Investment Property
10. CTC has the following assets:

Land held for long-term capital appreciation 800,000

Land held for a currently undetermined future use 2,800,000
Land held for future plant site 4,000,000
Land held for sale in ordinary course of business 400,000
Building rented out under finance lease 7,600,000
Building rented out under operating lease 3,200,000
Building held under an operating lease 4,400,000
Building held under finance lease and rented out under operating lease 4,800,000
Equipment leased out under operating lease 200,000

How much is the investment property?

Total Investment Property
11. MC has the following assets:
Vacant building to be leased out under operating lease 4,000,000
Building being constructed for TA Inc. 800,000
Building under construction to be used as office 1,600,000
Building under construction to be rented out under operating lease 400,000
Building rented out to MC’s employees who pay rent at maket rates 3,200,000
Office building awaiting disposal 200,000
How much is the investment property?
Portions sold separately
12. VRC has a 10-storey condominium building with a carrying amount of 16,000,000. The first 4 floors are
being rented out to tenants under operating lease and the rest are used as office spaces. Each portion
of the building can be sold separately or leased out separately under finance lease. Assuming that the
fair value of the condominium units are approximately equal, how much is classified as Investment
Property?
Portions sold separately (PPE as insignificant portion)
13. IMC owns a 100,000 sq. meter mall. The rentable space is 80,000 sq. meters. However, a 10 sq. meter
space is occupied as an administration office. The carrying amount of the building is 40,000,000. How
much is classified as investment property?
Insignificant ancillary services
14. LC owns a building being rented out to various tenants under operating lease. LC provides security and
maintenance services. The building has a carrying amount of 4,000,000. Leasing is not the primary
business of LC. How much would be classified as investment property?

Significant ancillary services

15. LLC owns a building operated as hotel. The building has a carrying amount of 4,000,000. How much
would be classified as investment property?
Investment property in consolidated financial statements
16. TC owns a 90% interest in SI. During the year TC rented out a building to SI. As of year-end, the building
has a carrying amount of 4,000,000. In the consolidated financial statements, how much would be
presented as investment property?
Initial measurement of investment property
17. LC has the following transactions during the year:
a. Purchased building to be held as investment property for 4,000,000. Direct cost incurred amounted
to 80,000. Costs of day-to-day servicing for the asset totaled 20,000.

Albert I. Rivera, CPA, MBA, CRA 2 of 4

GOVERNMENT GRANT_INVESTMENT PROPERTY
2020-SPN AiRnotes

b. Constructed building to be used as investment property. Total costs incurred include the following:
Materials, labor and overhead – 8,000,000; Start-up cost – 400,000; operating losses 200,000;
abnormal amounts of wasted materials during construction – 80,000
c. Land acquired currently with undetermined future use by issuing note payable with face amount
of 4,000,000 and a present value of 3,200,000
d. Building acquired through finance lease to be rented out under various operating lease. The FV of
the building is 2,120,000 and the PV of lease payments is 2,000,000
e. Land to be used as investment property was acquired through exchange. FV of asset given up in
exchange for the land is 12,000,000. FV of the land received is 14,400,000. Additional cash paid for
the land received is 2,000,000. The exchange has commercial substance

How much is the total cost of investment property on initial recognition?

Fair value model

18. On 1 January 20x1, NC acquired building with an estimated useful life of 10 years and residual value of
400,000 for a total cost of 4,000,000. The fair value on the building on 1 January 20x1 is 4,800,000
while the fair value on 31 December 20x1 is 5,200,000. NC estimates that if the building is sold currently
on 31 Dec 20x1, costs to sell amount to 200,000. NC uses the straight line method in depreciating PPE.
NC uses the FV model in its investment properties.
Required:
a. Provide the year-end adjusting journal entry.
Change in accounting policy
19. GC has an investment property with carrying amount of 4,400,000 and fair value of 5,200,000 on 1 Jan
20x1:
Required:
a. If GC decides to change its accounting policy from the cost model to fair value model, how much is
the gain or loss on the change?
b. If GC decides to change its accounting policy from the FV model to cost model, how much is the
gain or loss on the change?
Property Interest in operating lease
20. On 1 Jan 20x1, WC entered into an operating lease with CL for a building. The building will be subject
under various operating leases. Annual rent is 400,000 for 10 years. On 1 Jan 20x1, WC decided to
classify the property interest in the operating lease as investment property. It was determined that the
PV of lease payments is 3,200,000 which is equal to the FV of the property interest on that date.

Prior to 1 Jan 20x1, WC uses the cost model to measure its investment property. The carrying amounts
and fair values of the other investment property are show below:

Items of investment property CV – 1 Jan 20x1 FV – 1 Jan 20x1

Land 2,000,000 2,400,000
Building (acquired 10 years 800,000 1,200,000

How much is the total carrying amount of all investment property held by WC on 1 Jan 20x1
immediately upon recognition of the property interest as investment property?
Inability to determine fair value reliably on initial recognition
21. SC uses the FV model for its investment property. On 1 Jan 20x1, SC acquired a plant for 4,000,000 to
be rented out under various operating leases. The plant has an estimated useful life of 10 years and a
residual value of 800,000. Due to its special nature, SC assessed that the FV of the plant cannot be
determined reliably at initial recognition and on a continuing basis. How much is the carrying amount
of the plant as of 31 Dec 20x1?
Transfer under Cost Model – PPE to IP
22. On 1 Jan 20x1, JC decided to lease out under operating lease one of its buildings that was previously
used as office space. The building has an original cost of 12,000,000 and a carrying amount of 4,000,000
and fair value of 4,800,000 as of 1 Jan 20x1. JC uses cost model for both PPE and investment property.
The building has a remaining useful life of 10 years as of 1 Jan 20x1. JC uses the straight line method of
depreciation. How much is the gain/loss on the reclassification to investment property?
Transfer under Cost Model –IP to PPE
23. On 31 Dec 20x1, SC decided to use as office space one of its buildings that was previously leased out.
The building has an original cost of 12,000,000 and an accumulated depreciation of 8,000,000. The
recoverable value of the building is 3,200,000 as of 31 Dec 20x1. SC uses the cost model for PPE and
investment property. What is the journal entry on 31 Dec 20x1?

Albert I. Rivera, CPA, MBA, CRA 3 of 4

GOVERNMENT GRANT_INVESTMENT PROPERTY
2020-SPN AiRnotes

Transfer under FV model – IP to PPE

24. On 31 Dec 20x1, HC decided to use as office space one of its buildings that was previously leased out.
The building has fair value of 4,000,000 and 4,800,000 on 1 Jan 20x1 and 31 Dec 20x1, respectively. HC
uses the FV model for investment property. What is the journal entry on 31 Dec 20x1?
Transfer under FV model – PPE to IP
25. On 31 Dec 20x1, DC decided to lease out under operating lease one of its buildings that was previously
used as office space. The building has an original cost of 12,000,000 and accumulated depreciation of
8,000,000 as of 1 Jan 20x1. Annual depreciation is 400,000. DC uses the FV model for investment
property. The FV of the building on 31 Dec 20x1 is 6,000,000. What is the entry to record the transfer
of the building to investment property?

Transfer under FV model – PPE to IP

26. On 31 Dec 20x1, DC decided to reclassify a building previously used as owner-occupied property to
investment property. DC determined the following:
Historical cost 12,000,000
Carrying amount – 12/31/20x1 8,000,000
Accumulated depreciation 4,000,000
Carrying amount had no impairment loss 4,800,000
been recognized previously – 12/31/20x1
Fair value 12/31/20x1 6,400,000
DC uses the fair value model for investment property.
Required:
a. How much is recognized in P/L on 31 Dec 20x1 relating to the transfer?
b. How much is recognized in OCI and accumulated equity on 31 Dec 20x1 relating to the transfer?

Transfer under FV model – PPE to IP

27. On 31 Dec 20x1, HTC decided to reclassify a building previously used as owner-occupied property to
investment property. HTC determined the following:
Historical cost 12,000,000
Carrying amount – 12/31/20x1 8,000,000
Accumulated depreciation 4,000,000
Revaluation Surplus 800,000
Fair value 12/31/20x1 6,400,000
HTC Co. uses the fair value model for investment property. What is the result of the transfer?

Transfer under FV model – PPE to IP

28. On 31 Dec 20x1, RRC decided to redevelop its building to be sold in the ordinary course of business.
RRC uses the FV model for investment property. Fair values of the investment property are:
FV – 1 Jan 20x1 6,800,000
FV – 31 Dec 20x1 6,400,000
The transfer of the investment property to inventory resulted to?

Replacement of parts – cost model

29. ESC acquired a building on 1 Jan 20x1 for a total cost of 24,000,000 and classified it as investment
property. The building is estimated to have a useful life of 10 years. ESC uses the cost model for its
investment property and the straight line method of depreciation. On 1 Jan 20x5, the elevator in the
building was replaced for a total cost of 3,200,000.
Required:
a. Assuming ESC determined that the cost of the old elevator replaced is 2,000,000. How much is the
gain/loss on the replacement?
b. Assuming it is impracticable to determine the cost of the old elevator replaced, how much is the
gain/loss on the replacement?

Replacement of parts – FV model

30. PRC acquired a building on 1 January 20x1 for a total cost of 24,000,000 and classified it as investment
property. PRC uses the fair value model for its investment property. On 1 Jan 20x5, when the carrying
amount of the building is 16,000,000, the elevator in the building was replaced for a total cost of
3,200,000. It is impracticable to determine the FV of the replaced part. The FV of the building on 31
Dec 20x5 is 17,200,000. How much is the loss recognized during the year?

Albert I. Rivera, CPA, MBA, CRA 4 of 4