Baltazar, Dezie B.

BSA-3B

True or False.

1. False

2. False

3. True

4. False

5. False

6. False

7. False

8. True

9. False

10. False

Identification.

1. Derecognition

2. Philippine GAAP

3. Property, Plant and Equipment (PPE)

4. Effective interest method

5. Commercial substance

Modified True or False

1. Cash basis

2. True

3. Recorded at fair value

4. PFRS

5. True
Baltazar, Dezie B.
BSA-3B

Problem 1

a) What is the total investment property that should be reported in the consolidated statement of
financial position of the parent and its subsidiaries?

Answer:

Land for undetermined use 5,000,000

Building owned and for which the subsidiary provides security

and maintenance services to the leases 1,500,000

Property under construction for use as investment property 6,000,000

Building leased out by Eragon to an unrelated party under an operating lease 1,000,000

Total investment property P 13,500,000

b) What total amount should be considered as owner-occupied property and included in property, plant
and equipment in the consolidated statement of financial position?

Answer:

Property held for use in a production 4,000,000

Land leased by Eragon to a subsidiary under an operating lease 2,500,000

Land held for future factory site 3,500,000

A machinery owned by Eragon and is leased out

under an operating lease 3,000,000

Total property, plant and equipment P 13,000,000

Problem 2

a) What is the carrying amount of the investment property on December 31, 2021?

Answer:

Cost – Jan. 1, 2019 2,200,000

Accumulated depreciation (2,200,000/40 x 3) (165,000)

Carrying Amount – Dec. 31,2021 P 1,035,000

Baltazar, Dezie B.
BSA-3B

b) What amount should be recognized as gain from change in fair value in 2021?

Answer:

NO DEPRECIATION IS RECORDED FOR THE INVESTMENT PROPERTY

c) What is the gain or loss to be recognized for the year ended December 31, 2021 regarding the
disposal of the property?

Answer:

Sale Price 2,900,000

Carrying amount – Dec. 31, 2021 2,035,000

Gain on disposal of property P 865,000

Problem 3

a) What amount should be reported as depreciation of investment property for 2021?

Answer:

NO DEPRECIATION IS RECORDED FOR THE INVESTMENT PROPERTY

b) Prepare the journal entries for 2021, 2022, 2023.

Answer:

FV- Dec. 31, 2021: 55,000,000

Cost – Jan. 1,2021: (50,000,000)

Gain from change in FV in 2021 P 5,000,000

 Investment Property 5,000,000

Gain from exchange in fair value 5,000,000

FV- Dec. 31, 2022: 53,000,000

Carrying Amount-Dec. 31, 2021: (55,000,000)

Loss from change in FV in 2022 P (2,000,000)

Baltazar, Dezie B.
BSA-3B

 Loss from exchange in fair value 2,000,000

Investment property 2,000,000

FV- Dec 31, 2023: 60,000,000

Cost – Jan 1, 2022: (53,000,000)

Gain from change in FV in 2021 P 7,000,000

 Investment property 7,000,000

Gain from exchange in fair value 7,000,000

Problem 4

a) What amount should be reported as total cost of land?

Answer:

First Acquisition (2,000,000 x 2/5) 2,160,000

Second Acquisition (3,840,000 x 40%) 4,000,000

Total cost of Land P 6,160,000

b) What amount should be reported as total cost of building?

Answer:

First Acquisition (3,000,000 x 3/5) 3,240,000

Second Acquisition (5,760,000 x 60%) 6,000,000

Total cost of Building P 9,240,000

Problem 5

a) What is the cost of the new equipment?

Answer:

Cost of new equipment (P480,000 x 3.60478) P 1,730,294

Baltazar, Dezie B.
BSA-3B

b) What amount of interest expense should be reported in Quizini’s income statement for the year
ended December 31, 2022?

Answer:

Interest expense for 2022 P 174,951

AMORTIZATION SCHEDULE:

DATE PAYMENT INTEREST REDUCTION OF PRINCIPAL CARRYING VALUE

Jan.2, 2021 P1,730,294

Dec.31,2021 P480,000 P207,635 P272,365 1,457,929

Dec.31,2022 480,000 174,951 305,049 1,152,880

Dec.31,2023 480,000 138,346 341,654 811,226

Dec.31,2024 480,000 97,347 382,653 428,573

Dec.31,2025 480,000 51,427* 428,573 -----------

*P428,573 x 12% = P51,429

Discrepancy of P2(P51.429-P51,427) due to rounding

c) What are the entries to record the payment and interest for 2022?

Answer:

 Interest expense 174,951

Discount on note payable 174,951
 Note payable 480,000
Cash 480,000

d) What is the carrying value of the note at December 31, 2023?

Answer:

Carrying Value of note for December 31,2023 P 811,226

Baltazar, Dezie B.
BSA-3B

AMORTIZATION SCHEDULE:

DATE PAYMENT INTEREST REDUCTION OF PRINCIPAL CARRYING VALUE

Jan.2, 2021 P1,730,294

Dec.31,2021 P480,000 P207,635 P272,365 1,457,929

Dec.31,2022 480,000 174,951 305,049 1,152,880

Dec.31,2023 480,000 138,346 341,654 811,226

Dec.31,2024 480,000 97,347 382,653 428,573

Dec.31,2025 480,000 51,427* 428,573 -----------

*P428,573 x 12% = P51,429

Discrepancy of P2(P51.429-P51,427) due to rounding

Problem 6

a) what amount of gain/loss should be recognized on the exchange?

Answer:

Cash price of new machine 4,500,000

Less: Cash Payment 800,000

Fair Value of Old Machine 3,700,000

Less: Carrying amount of Old Machine 4,000,000

Loss on Exchange (P 300,000)