Investment Property

Quizzer – Theory 1
1. PAS 40 defines this property as land or building or part of building or both held by an owner or finance lessee to
earn rentals or for capital appreciation or both.
A. Investment property C. Owner-occupied property
B. Mining property D. Rental property

2. The following properties fall under the definition of investment property, except
A. Land held for long-term capital appreciation
B. Property occupied by an employee paying market rent
C. Land held for a currently undetermined use
D. A building owned by an entity and leased out under an operating lease
3. Which of the following statements best describes owner-occupied property?
A. Property held for sale in the ordinary course of business
B. Property held for use in the production and supply of goods or services and property held for administrative
purposes
C. Property held to earn rentals
D. Property held for capital appreciation

4. An investment property shall be measured initially at

A. Cost
B. Cost less accumulated impairment losses
C. Depreciable cost less accumulated impairment losses
D. Fair value less accumulated impairment losses

5. Subsequent to initial recognition, investment property shall be measured at

A. Fair value
B. Cost less accumulated depreciation and any accumulated impairment losses
C. Either fair value or cost less accumulated depreciation and any accumulated impairment losses.
D. Either fair value or cost.

6. In case of property held under an operating lease and classified as investment property
A. The entity has to account for the investment property under the cost model only.
B. The entity has to use the fair value model only
C. The entity has a choice between the cost model and fair value model.
D. The entity needs only to disclose the fair value and can use the cost model.

7. Which statement is incorrect in determining the fair value of an investment property?

A. An entity shall determine the fair value of investment property after deduction for transaction costs that may
be incurred upon disposal.
B. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the
furniture because the rental income relates to the furnished office.
C. The fair value of investment property excludes prepaid or accrued operating lease income.
D. Equipment such as lift, or air-conditioning is often an integral part of a building and is generally included in
the fair value of the investment property rather than recognized separately as property, plant and
equipment.

8. Transfers from investment property to property, plant and equipment are appropriate
A. When there is change of use.
B. Based on the entity’s discretion.
C. Only when the entity adopts the fair value model.
D. The entity can never transfer property into another classification once it is classified as investment property.

9. When the entity uses the cost model, transfer between investment property, owner-occupied property and
inventory shall be accounted for at
A. Carrying amount B. Either at fair value or carrying amount
 C. Fair value D. Neither at fair value nor carrying amount

10. A transfer from investment property carried at fair value to owner-occupied property shall be accounted for at
A. Fair value which becomes the deemed cost C. Historical cost
B. Appraised value D. Assessed value

11. If inventory is transferred to investment property that is to be carried at fair value, the difference between
carrying amount and fair value shall be included in
A. Other comprehensive income
B. Retained earnings
C. Profit or loss
D. Either other comprehensive income or profit or loss

12. An investment property is derecognized when

A. It is disposed to a third party.
B. It is permanently withdrawn from use.
C. No future economic benefits are expected from its disposal.
D. In all of the above cases.

Quizzer – Problem 1
1. Akie Company purchases a landed property at a cost of P100,000,000. In the sale and purchase agreement,
P20,000,000 of the purchase price is attributed to the land portion. The building consists of 10 floors of equal
space. Two floors are used for administrative purposes and the balance are let out to tenants. Akie also incurs the
following costs in connection with the purchase of the property: Legal and agency fees, P3,000,000; Soft
launching cost to market for tenants, P500,000; Feng Shui costs for re-arrangements of interiors, P300,000; and
administrative expenses, P200,000. At what amount should the investment property be initially recognized?
A. P82,400,000
B. P82,800,000
C. P83,200,000
D. P103,000,000

2. Billie Company leases an entire shopping complex from Complex Company under a 20-year operating lease.
Under the lease agreement, Billie would manage and take the risks of operating the shopping complex for 20
years. It pays a yearly rental of P40,000,000 to Complex Company. Billie uses 20% of the floor area for its own
operations. The rest of the floor area is sub-leased to other tenants. Billie Company expects rental income from
the sublease to be about P35,000,000 per year for 20 years. The borrowing costs of Billie Company is 8% per
year. The cost of constructing the complex incurred by Complex Company is P480,000,000, transaction and other
incidental costs amount to P20,000,000. If Billie Company elects to treat its interest in the shopping complex as
an investment property, being its interest in the underlying asset, at what amount should the investment
property be initially recognized by Billie Company?
A. None
B. P343,640,000
C. P400,000,000
D. P500,000,000

3. At the beginning of the year 2019, Dory Company has an investment property, acquired at cost of P1,000,000.
Depreciation of P50,000 is recognized annually and periodic continuing repair costs of P5,000 per year as well as
property tax of P5,000 are incurred by the company on an annual basis. As of December 31, 2019, the property
has no determinable fair value. What should be the carrying value of the investment property on December 31,
2019?
a) None
b) P900,000
c) P940,000
d) P950,000
4. On January 2, 2019, Frankie Company’s investment property has a carrying value of P3,600,000 under the fair
value model. On December 31, 2019, the property has a fair value of P3,000,000, what amount of gain or loss
should Frankie continue to recognize if Frankie would shift to cost model?
A. Gain of P600,000 reported in other comprehensive income
B. Loss of P600,000 reported in the profit or loss
C. Loss of P600,000 reported in equity as decrease in revaluation surplus
D. Zero

5. On July 1, 2019, Eevy Company purchases an investment property at a cost of P50,000,000 including transaction
costs. On October 1, 2019, the fair value of the property increases to P52,000,000. At December 31, 2019, the fair
value of the property is P51,500,000. The rental income received per quarter is P1,000,000. The property has a
useful life of 50 years.

Question 1: If the company uses the cost model, what is the net effect on the profit or loss for the six months
ended December 31, 2019 in relation to the investment property?
A. P(500,000)
B. P1,000,000
C. P1,500,000
D. P2,000,000

Question 2: If the company uses the fair value model, what is the net effect on the profit or loss for the six months
ended December 31, 2019 in relation to the investment property?
A. P1,000,000
B. P1,500,000
C. P2,000,000
D. P3,500,000

6. On January 1, 2019, Gellie Company which uses the fair value model, purchases an investment property at a cost
of P50,000,000. At December 31, 2019, the market value of the property is P60,000,000. The fair market value of
the property on December 31, 2020 is P55,000,000. On January 1, 2021, the property was reclassified to
property, plant and equipment. At what amount should the property, plant and equipment be initially recorded?
A. Zero
B. P50,000,000
C. P55,000,000
D. P60,000,000

7. Honey Company has a plant asset with a carrying value of P1,200,000 as of December 31, 2019. On January 1,
2020, the company decided to convert the plant asset to investment property. The fair value at date of conversion
is P900,000. The conversion would result to
A. P300,000 loss on conversion reported as other comprehensive income
B. P300,000 loss on conversion reported in profit or loss
C. P900,000 increase in investment property
D. P1,200,000 decrease in plant assets

8. Ikea Company, a property developer, completed the development of 30 units of office building for sale. Upon
completion, 5 units remain unsold and classified as inventories. The cost of these remaining units is P2,000,000
per unit whilst the net selling price is P2,500,000 per unit. Management subsequently decides to hold the units
as investment property by letting out to tenants. What amount of gain or loss should Ikea Company recognize on
the transfer of inventories to investment property?
A. None
B. P500,000
C. P2,000,000
D. P2,500,000

9. On January 2, 2019, Jillian Company made a test of impairment on one of its buildings carried as plant asset. The
test on impairment revealed a recoverable value of P5,500,000 on that building. The carrying value of this
building as of January 2, 2019 is P8,000,000 with a remaining useful life of 10 years.
 On January 1, 2021, Jillian Company decided to convert this building into an investment property that is to be
carried at fair value. The cost of converting the building is insignificant but as a result of the change in the usage,
the fair market value of the building was reliably valued at P7,000,000. What amount of revaluation surplus
should Jillian Company disclose in the shareholders’ equity as of December 31, 2021?
A. None
B. P525,000
C. P600,000
D. P2,000,000

NCAHFS

1. N COMPANY accounted for noncurrent assets using the revaluation model. On October
1, 2017, the entity classified a land as held for sale. At that date, the carrying amount
of the land was P5,000,000 and the balance in the revaluation surplus was
P1,500,000. At same date, the fair value of the land was estimated at P5,500,000 and
the cost of disposal at P100,000. On December 31, 2017, the fair value less cost of
disposal of the land did not change. The land was sold on January 31, 2018 for
P6,000,000. What amount should be reported as gain on disposal of land in 2018?

a. 1,000,000
b. 2,600,000
c. 500,000
d. 600,000

2. O COMPANY purchased an equipment for P5,000,000 on January 1, 2016. The

equipment had a useful life of 5 years with no residual value. On December 31, 2016,
the entity classified the asset as held for sale. On such date, the fair value less cost of
disposal of the equipment was P3,500,000.

On December 31, 2017, the entity believed that the criteria for classification as held for
sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. On December 31, 2017, the fair value less cost of disposal of the
equipment was P2,700,000.

What amount of impairment loss should be recognized in 2016?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

3. What amount should be included in profit or loss in 2017 as a result of the

reclassification of the equipment to property, plant and equipment?

A. 800,000 gain
b. 800,000 loss
c. 300,000 gain
d. 300,000 loss

4. What is the depreciation for 2018?

a. 1,000,000
b. 875,000
c. 900,000
d. 675,000