Investment property held by lessee IFRS 16, the new standard on leases, requires a lessee to Teognize a right of use asset and a lease liability. The "right of use" asset is initially recognized at cost which ‘Icludes the following: 4 The present value of the lease payment | Lease payment made to the lessor & ial directo date less any lease incentive mal direct cost incurred by the lessee ‘ Estimate of cost of dismantling and restoring the underlying t or before asset for which the lessee has a present obligation Scanned with CamScannerflustration tity ventured into construction of a mega shopping mall anath Asia which is rated as the largest shopping mall of i Asia. The board of directors decided that instead of selling the shopping mall to a local investor, the entity would hold this property for purposes of earning rentals by letting out space in the shopping mall to tenants. The construction of the shopping mall was completed and the property was placed in service on January 1, 2020. The cost of the construction of the shopping mall was P100,000,000. The useful life of the shopping mall is 10 years and the residual value is P10,000,000. An independent valuation expert provided the following fair Yalue at each subsequent year-end: December 31, 2020 120,000,000 mber 31, 2021 125,000,000 mber 31, 2022 115,000,000 Unausets } San inenably, the mega shopping mall shall be recognized I tment property, F at entity j Node) inal select either the cost model or the fair value “eof ihe cting Such investment property becouse the fair “ssiment property can. be determined reliably. Scanned with CamScannerCost model i i easure the investment property under If the entity corns vaeset shall be carried at cost less the elated depreciation and any accumulated impairment accum) loss. Fluctuations in the fair value of the investment property from year to year are not recognized. Instead, the annual depreciation of the investment property is the charge against profit or loss for the year. Journal entries 1. To record the acquisition of the investment property: Investment property 100,000,000 Cash 100,000,000 2. To record the subsequent annual depreciation: Depreciation 9,000,000 Accumulated depreciation 9,000,000 Acquisition cost 100,000,000 Residual value (10,000,000) Depreciable amount 90,000,000 Annual depreciation (90,000,000/10 years) 9,000,000 Any change in fair value is not recognized. However, the fair value of the investment property is disclosed at every year-end. Scanned with CamScannerFair value model ifthe entity decides to measure the investm fair value model, the changes in fair Raa oe under fear thi 5 Fi year are recognized in profit or loss. No depreciation is recorded for the investment property. The net gains and losses from fair value adjustments shall be disclosed. Journal entries 2020 100,000,000 Jan. 1 Investment property Cash 100,000,000 Dec. 81 Investment property 20,000,000 Gain from change in fair value 20,000,000 ain Fair value — December 31, 2020 120,000,000 Acquisition cost 100,000,000 Increase in fair value in 2020 20,000,000 2021 Dec.81 Investment property 5,000,000 Gain from change in fair value 5,000,000 Fair value — December 31, 2021 125,000,000 Carrying amount — December 31, 2020 120,000,000 Increase in fair value in 2021 5,000,000 Deas 1 Loss from change infairvalue 10,000,000 Investment property 10,000,000 Fair value—December 31, 2022 115,000,000 ‘arrying amount — December 31, 2021 125,000,000 Demeter value inate (10,00,000) Scanned with CamScannerClassic Company and its subsidiaries own the follo : Wing! properties that are accounted for'in accordance : with international accounting standards: Land held by the parent for undetermined use 5,000,000 A vacant building owned by the parent and to be leased out under an operating lease 3,000,000 Property held by a subsidiary, a real : estate firm, in the ordinary course of business 2,000,000 Property held by the parent for use in production 4,000,000 Building owned by a subsidiary and for which the subsidiary provides security and maintenance services to the lessees 1,500,000 Land leased by the parent toa subsidiary under an operating lease 2,500,000 Property under construction for use as investment Property 6,000,000 Land held for future factory site 3,500,000 Machinery leased out by the parent to an unrelated 000 party under an operating lease 1,000, Required: be 1. Compute the total investment property that Se reported in the consolidated statement of fin Position of Classic Company and its subsidiaries. xcluded, 2. Indicate the classification of the assets that are © ‘ from investment property. Scanned with CamScannerAn entity insured the life of the president for P2,000,000 the entity being the beneficiary of an ordinary life policy. The annual premium is P30,000. The policy was dated January 1, 2020 and carried the following cash surrender value: End of the Policy year Cash surrender value 2020 oa 2021 = 2022 30,000 2023 42,000 2024 58,000 The entity used the calendar year as the fiscal period. The president died on Ju; ne 30, 2024 and the policy was collected on July 31, 2024. Scanned with CamScannerJournal entries 2020 Jan. 1 2021 Jan, 1 2022 Jan. 1 Dec. 31 2023 Jan. 1 Dec. 31 Life insurance expense 30,000 Cash 30,000 Life insurance expense 30,000 Cash : 30,000 Life insurance expense 30,000 Cash 30,000 Cash surrender value 30,000 Life insurance expense (1 / 3) 10,000 Retained earnings (prior two years) 20,000 To initially recognize the cash surrender value at the end of the 8rd policy year. Life insurance expense 30,000 Cash . 30,000 Cash surrender value 12,000 Life insurance expense 12,000 To recognize the increase in cash surrender value at the end of the 4th policy year. Balance, December 31, 2023 42,000 Balance, December 31, 2022 30,000 Increase in cash surrender value for 2028 12,000 Scanned with CamScanner2024 Jan. 1 Life insurance expense 30,000 Cash 30,000 June 30 Cash surrender value 8,000 Life insurance expense 8,000 To recognize the increase in cash surrender value up to time of death. , Balance, December 31, 2024 58,000 Balance, December 31, 2023 42,000 Increase in cash surrender value for 2024 16,000 Increase from January 1 to June 30, 2024 (1/2x 16,000) 8,000 July 31 Cash 2,000,000 Cash surrender value . 50,000 Life insurance expense _ 15,000 Gain on life insurance settlement 1,935,000 Face of policy . 2,000,000 Cash surrender value ( 50,000) Unexpired premium (30,000 x 6/12) (__ 15,000) Gain on life insurance settlement 1,935,000 Scanned with CamScannerImpartial Company took out a P5,000,000 insurance policy on the life of the president on January 1, 2019. The accounting period: is. the calendar year. The annual premium on the yolicy is P80,000. Data regardinz dividends and cash surrender value are: 2021 2022 2028 Dividend received on December 31 - 5,000 6,000 Cash surrender vaiue - 42,000 47,000 Required: Prepare journal entries for 2021, 2022 and 2023. Scanned with CamScanner