INVESTMENT PROPERTY

1. Determine the cost of the following items of investment property

acquired by Sebastian Corporation during 2021:

a. Land site for capital appreciation was acquired for P8,600,000.

Sebastian paid P430,000 commission to a real estate agent.
Costs of P135,000 were incurred to clear the land. During the
course of clearing the land, timber and gravel were recovered
and sold for P65,000.

b. Land and building were acquired to be held for lease under

operating leases. The company made a down payment of
P4,000,000, issued 20,000, P200 par ordinary shares with
market price of P240 per share and issued a three year non-
interest bearing note for P6,000,000. The note is payable in
equal annual installments of P2,000,000 at the end of each
year from the date of purchase. Prevailing interest rate for
similar notes is 10%. Thirty percent of the purchase price is
allocated to the land.

2. Precious Realty owns and holds several property items that are
held for sale as subdivided lots, condominiums and row houses.
In addition, it also owns the Rainbow Building, which it is leasing
to tenants under operating leases.

In July 2020, because of planned expansion for year 2021, the

company served notices to the Rainbow Building tenants for the
termination of lease contracts on the facilities. On January 2, 2021,
the Rainbow Building, which at that date had a carrying value of
P4,000,000, (with cost of P8,200,000) was occupied by the company
to carry out its sale and administrative activities. The company
 records annual depreciation of P200,000 on the Rainbow Building.

Required:
Prepare the necessary entries in 2021 as a result of the
foregoing. The company carries its investment property and
its property, plant and equipment using the cost model.

3. The following information relates to Absolute Company for the

year 2021:

Land Held as Investment Property

Cost P5,000,000
Fair value, January 1, 2021 6,000,000
Fair value, December 31, 2021 6,800,000
Estimated disposal cost 300,000

Building Held as Investment Property

Construction was completed at
January 1, 2021 at a total cost of P20,000,000
Estimated useful life is 40 years with
no residual value
Fair value at January 1, 2021 19,000,000
Fair value at December 31, 2021 20,000,000
Estimated disposal cost 500,000

Rent revenue recognized during 2021 3,000,000

Compensation paid to personnel for
administrative and security 200,000
Real property taxes applicable to 2021 120,000
Costs of maintenance paid to an outsourced
company 340,000
 Required:
Using both the cost model and the fair value model, determine the
following:

a. The amount of investment property that will be shown on

December 31, 2021 statement of financial position.
b. The accounts and amounts taken to profit or loss relating to
the investment property.

4. The Adam Company is in the process of opening a new division as a

result of its expansion. As a consequence, its main operation will
be transferred to Manila. It vacated its land and building in Davao
and held them for commercial rental under operating leases.
On such date, the land had a carrying amount of P20,000,000, while
the building had a carrying value of P35,000,000, net of P15,000,000
accumulated depreciation.

An independent appraiser engaged by Adam placed a revalued

amount of P28,000,000 for the land and P42,000,000 for the
building.

Required:
Formulate entries for the reclassification of the property,
assuming that:

a. Adam uses the cost model for its investment property.

b. Adam uses the fair value model for its investment property.

5. Accurate Company purchased an investment property on October 1,

2016 at a cost of P2,500,000. The property had a useful life of 10
 years and a residual value of P100,000. At December 31, 2020, the
property had a fair value of P2,300,000. The company's depreciation
policy is straight-line basis computed to the nearest month. On
February 1, 2021, the property was sold for net proceeds of
P2,200,000.

Required:
Using both the cost model and the fair value model, determine the
gain or loss to be recognized in profit or loss for the year ended
December 31, 2021, regarding the disposal of the property according
to IAS 40 Investment Property.

6. The Conceptual Company has a single investment property, which

had an original cost of P5,800,000 when acquired on July 1, 2018.
On that date, the property had a useful life of 40 years and an
estimated residual value of P400,000. The company's accounting
year ends on December 31 and uses straight-line method of
depreciating its investment property computed to the nearest
month. The asset's fair values at each year-end are as follows:

2018 - P5,850,000 2020 - P6,000,000

2019 - P5,980,000 2021 - P5,850,000

Required:
Using the cost model, determine the following:

a. Amount reported in 2021 profit or loss.

b. Carrying amount of the Investment Property at December 31,
2021.
8.
 Answers
1. Sebastian Corporation
a. Purchase Price of Land Site 8,600,000
Commision paid to the real eastate agent 430,000
Cost of clearing of land: 135,000
Recovered land, timer, and gravel 65,000
Total Cost of Land site 9,100,000

b. Downpayment 4,000,000
Market value of ordinary 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 Costs of land and building 13,773,800
Costs allocated to land (30%)
Total Costs allocated to land 4,132,140
Costs allocated to building (70%)
Total Costs allocated to building 9,641,660

2. Precious Realty Corporation

Journal Entries:
Jan. 2, 2021 Buildings 8,200,000
Accumulation Depreciation Building - investment property 4,200,000
Building held as investment property
Accumulated Depreciation Building

Dec. 31, 2021 Depreciation Expense (Building) 200,000

Accumulated Depreciation Building

3. Absolute Company
a. Cost Model
Investment Property as of December 31, 2021
Land 5,000,000
Cost of Building 20,000,000
Accumulated Depreciation (20,000,000 / 40 x 3) 1,500,000
Total Investment Property 23,500,000
 Fair Value Model
Investment Property at December 31, 2021
Land 6,800,000
Cost of Building 20,000,000
Total Investment Property 26,800,000

b. Cost Model
Accounts taken to profit or loss of the company
Rent Revenue 3,000,000
Depreciation Expense 500,000
Administrative and Security Salaries 200,000
Property Taxes 120,000
Maintenance 340,000
Profit 1,840,000

Fair Value Model

Accounts taken to profit or loss of the company
Rent revenue 3,000,000
FV of Land 800,000
FV of Building 1,000,000
Depreciation Expense 500,000
Administrative and Security alaries 200,000
Property Taxes 120,000
Maintenance 340,000
Profit 3,640,000

4. Adam Company
a. Cost Model
Land held as Investment Property 20,000,000
Building Held as Investment Property 50,000,000
Accumulated Depreciation Building 15,000,000
Land
Building
Acc. Dep. Building Held as Investment Property
 b. Fair Value Model
Land held as Investment Property 28,000,000
Land
Revaluation Surplus

Building Held as Investment Property 60,000,000

Accumulated Depreciation Building 15,000,000
Building
Acc. Dep. Building Held as Investment Property
Revaluation Surplus

5. Accurate Company
a. Cost Model
Cost of Investment Property
Less: Residual Value
Depreciable Value
Divide: Useful Life
Annual Depreciation

Cost of Investment Property

Accumulated Depreciation
240,000 x 4/12 80,000
240,000 x 4 960,000
Carrying Value of Property

Selling Price
Carrying Value
Gain on Sale of Investment Property

b. Fair Value Model

Fair Value of Property
Selling Price
Gain on Sale of Investment Property

6. Conceptual Company
a. Cost of Investment Property
 Less: Residual Value
Depreciable Value
Divide: Useful Life
Annual Depreciation

b. Cost of Investment Property

Accumulated Depreciation
135,000 x 6/12 67,500
135,000 x 3 years 405,000
Carrying Value of Property
8,200,000
4,200,000

200,00
20,000,000
50,000,000
15,000,000
20,000,000
8,000,000

50,000,000
18,000,000
7,000,000

2,500,000
100,000
2,400,000
10
240,000

2,500,000

1,040,000
1,460,000

2,200,000
1,460,000
740,000

2,300,000
2,200,000
100,000

5,800,000
 400,000
5,400,000
40
135,000

5,800,000

472,500
5,327,500