1.

Investment Property (Fair Value Model VS Cost Model)

Mark Glenn Company acquired land and building as investment property for a total cost
of P8,000,000 on January 1, 2020. 20% of the amount applies to the land and the rest is
for the building. The building has a life of 30 years. The company’s depreciation policy is
straight-line method. On December 31, 2020, the fair value of land and building is
P8,300,000.

Prepare the necessary journal entries using the two models in accounting for investment
property.

Fair Value Model

1/1/2020
Investment Property 8,000,000
Cash 8,000,000

12/31/2021
Investment Property 300,000
Unrealized Holding Gain – P/L 300,000
Depreciation is only disclosed in the FS

Cost Model
1/1/2020
Investment Property 8,000,000
Cash 8,000,000

12/31/2020
Depreciation Expense 266,667
Accumulated Depreciation 266,667
8,000,000/30 years = 266,667
CA = 8,000,000 – 266,667 = 7,733,333
Change in the FV will be disclosed only the FS

2. Dao Ming Company engaged into construction of a Super Mall for the purpose of earning
rentals from tenants. The construction was completed on January 1, 20A with total cost of
130,000,000. The property has a useful life of 10 years and residual value of 13,000,000.

An independent valuation was provided regarding fair value of the property at each year
end.
Dec. 31, 20A 156,000,000
Dec. 31, 20B 162,500,000
Dec. 31, 20C 149,500,000

The self-constructed property is recorded initially at the cost when the construction is
completed which is 130,000,000.
Subsequently, it will be measured either by cost model or revaluation model. The
following are the entries using the two methods for the three years.

Fair Value Model

Investment Property 26,000,000
Gain from change in the FV 26,000,000

Investment Property 6,500,000

Gain from change in the FV 6,500,000

Loss from change in the FV 13,000,000

Investment Property 13,000,000

Cost Model
130,000,000-13,000,000/10 = 11,700,000
Depreciation Expense 11,700,000
Accumulated Depreciation 11,700,000

Depreciation Expense 11,700,000

Accumulated Depreciation 11,700,000

Depreciation Expense 11,700,000

Accumulated Depreciation 11,700,000

Continuing the first illustration, if the investment property was carried at cost model and
is sold for a selling price of 96,000,000 on Dec.31, 2019, what is the entry on the disposal
of investment property?
Cost Model
11,700,000*3 years = 35,100,000
130,000,000 – 35,100,000 = 94,900,000 CA
Selling Price 96,000,000
Gain on disposal 1,100,000

Cash 96,000,000
Accumulated Depreciation 35,100,000
Investment Property 130,000,000
Gain on disposal 1,100,000
Assume further the same problem information, except that the revaluation model/fair
value model has been used by the company, and the investment was sold for a selling
price of 143,000,000, the answer to the question and the entry upon sale of the investment
property on Dec. 31, 20C will be:

Dec. 31, 20C 149,500,000

SP 143,000,000
Loss on disposal 6,500,000

Cash 143,000,000
Loss on disposal 6,500,000
Investment Property 149,500,000