ASSESSMENT ACTIVITIES

DISCUSSION QUESTIONS
In a separate sheet of paper, kindly copy the questions, then answer.
1. How is an investment property distinguished from owner-occupied property? From
inventories?
2. Give instances when an is classified “from” and “into” investment property.
3. How are the assets classified as investment property measured in the statement of
financial position?
4. Are assets held for rental classified as investment property? Discuss.
5. Differentiate accounting treatment subsequent to initial recognition of investment
properties using cost and fair value model.

PROBLEMS
Show your complete solution, in good accounting form, on a separate sheet of paper.

Problem 1
Indicate which of the following items will be reported as Investment property.
a. Building occupied as factory site
b. Land held for capital appreciation
c. Land held for undetermined future use
d. Building that houses materials for construction
e. Condominium units in the building that is being constructed for sale in ordinary course of
business
f. Vacant building that is intended to be leased out under operating leases
g. Machinery held for rental
h. Property constructed on behalf of a third party

Problem 2
The Buckethead Company has a single investment property which had originally cost P580,000
on 1 January 2017. At 31 December 2019 its fair value was P600,000 and at 31 December
2010 it had a fair value of P590,000. On acquisition, the property had a useful life of 40 years.

What should be the expense recognized in Buckethead's profit or loss for the year
ending 31 December 2020 under each of the fair value model and the cost model?

Problem 3
The Conehead Company purchased an investment property on January 1, 2017 for a cost of
P220,000. The property had a useful life of 40 years and on December 31, 2019 had a fair value
of P300,000. On January 1, 2020, the property was sold for net proceeds of P290,000.
Conehead uses the cost model to account for investment properties.

What is the gain or loss to be recognized in profit or loss for the year ended December
312020 regarding the disposal of the property?

Problem 2-4
Bangon Cagayanon Corporation acquired a building on January 1, 2021. The acquisition cost
was P= 5,000,000 payable at the rate of P= 1M at the beginning of each year starting January
1, 2021. The company paid option money totaling P= 400,000, P= 85,221 of which is attributed
to real properties not acquired. The company also paid property taxes in arrears as of January
1, 2021 at P= 147,872. The prevailing market rate of interest for transaction is 12%. The
building is estimated to have useful life of 25 Years.
The property was appraised at the end of each year as follows:
2021 2020 2021
Appraised values P= 4,600,000 P= 4,100,000 P= 4,300,000

Required:
1. How much the property should be initially recognized?
2. What is the carrying value property of the as of December 31, 2020, assuming that
the building is an owner-occupied property?
3. Using the information in number 2, how much impairment loss should be
recognized from the asset in the 2020 profit or loss?
4. What is the carrying value of the property as of December 31, 2021,
assuming that the building is an investment property under the cost
method?
5. Using the information in number 4, how much impairment recovery gain
should be recognized from the asset in the 2021 profit or loss?
6. Assuming that the building is originally categorized as owner occupied
upon acquisition but was transferred to investment property at the end of
2021, how much gain or loss from transfer should be recognized in the
income statement assuming that investment properties are carried at fair
value method?
7. Assuming that the building is originally categorized as investment
property upon acquisition but was transferred to owner-occupied
property at the end of 2021, how much gain or loss from transfer should
be recognized in the income statement assuming that investment
properties are carried at fair value method?