Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current

Assets Held for Sale

CHAPTER 8
INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS
AND NONCURRENT ASSETS HELD FOR SALE

Discussion Question No. 12

(a), (b), (c), (e), (g), (o), (r) with option to or not to report as investment property

(d) not shown in the financial statements (with Finance Lease Receivable)
(f) Property, Plant and Equipment
(h) Property, Plant and Equipment, until consummation of lease
(i) Inventories
(j) Inventories
(k) Construction in Progress (Inventories)
(l) Property, Plant and Equipment
(m) Property, Plant and Equipment
(n) Property, Plant and Equipment
(p) Property, Plant and Equipment
(q) not shown, unless leased under finance lease (PPE)

PROBLEMS

8-1. (Sebastian Corporation)

a. Purchase price P 8,600,000

Commission to real estate agent 430,000
Costs of clearing the land (net of timber and gravel recovered
amounting to P65,000) 70,000
Total cost . P 9,100,000

b. Down payment P 4,000,000

Market value of shares issued (20,000 x 240) 4,800,000
Present value of non-interest bearing note issued
(2,000,000 x 2.4869) 4,973,800
Total cost of land and building P13,773,800
Cost allocated to land (30% x 13,773,800) P 4,132,140
Cost allocated to building (70% x 13,773,800) P 9,641,660

8-2. (Precious Realty Corporation)

1/2/16 Buildings 8,200,000

Accumulated Depreciation – Building Held as
Investment Property 4,200,000
Buildings Held as Investment Property 8,200,000
Accumulated Depreciation - Buildings 4,200,000

12/31/1 Depreciation Expense – Buildings 200,000

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Accumulated Depreciation - Buildings 200,000

8-3. (Absolute Corporation)

Cost Model
(a) Investment Property at December 31, 2016
Land P 5,000,000
Building
Cost P20,000,000
Accumulated Depreciation
20,000,000/40 x 3 1,500,000 18,500,000
Total Investment Property P23,500,000

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Assets Held for Sale

(b) Amounts and Accounts Taken to Profit or Loss

Rent Revenue P 3,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P 1,960,000

Fair Value Model

(a) Investment Property at December 31, 2016
Land P 6,800,000
Building 20,000,000
Total Investment Property P26,800,000

(b) Amounts and Accounts Taken to Profit or Loss

Rent Revenue P3,000,000
Change in Fair Value of Investment Property
Land 800,000
Building 1,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P3,760,000

8-4. (Adam Company)

(a) Cost Model

Land Held as Investment Property 20.0M
Building Held as Investment Property 50.0M
Accum. Depr. – Building 15.0M
Land 20.0M
Building 50.0M
Accumulated Depreciation – Bldg Held
as Investment Property 15.0M

(b) Fair Value Model

Land Held as Investment Property 28.0M
Land 20.0M
Revaluation Surplus 8.0M

Building Held as Investment Property 60.0M

Accum. Depreciation-Building 15.0M
Building 50.0M
Accum. Depr. – Building Held as
Investment Property 18.0M
Revaluation Surplus 7.0M

35M/50M = 70%; 42M/70% = 60M

60M – 42M = 18M; 42M – 35M = 7M

8-5. (Raymond Company)

1. Building Construction Fund Cash

Cash

2. Building Expansion Fund Securities

Building Expansion Fund Cash

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current
Assets Held for Sale

3. Building Expansion Fund Securities

Interest Receivable – Building Expansion Fund
Building Expansion Fund Cash

4. Building Expansion Fund Cash

Dividend Income

5. Building Expansion Fund Expenses

Building Expansion Fund Cash

6. Building Expansion Fund Cash

Interest Receivable – Building Expansion Fund
Interest Income

7. Building Expansion Fund Securities

Building Expansion Fund Cash

8. Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities
Interest Income

9. Building Expansion Fund Cash

Dividend Income

10. Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11. Buildings
Building Expansion Fund Cash

12. Cash
Building Expansion Fund Cash

8-6. (Cordero Corporation)

(a) Required semiannual deposit

= P15,000,000/ FV of annuity of 1 discounted at 4% for 20 periods
= P15,000,000 / 29.7781 = P503,726

(b) 1/2/16
Bond Sinking Fund Cash 503,726
Cash 503,726

6/30/16
Bond Sinking Fund Cash 523,875
Cash 503,726
Interest Income (503,726 x 4%) 20,149

12/31/16
Bond Sinking Fund Cash 544,830
Cash 503,726
Interest Income 41,104
4% ( 503,726 + 523,875) = 41,104

8-7. (Dorina Company)

(a) Entries for 2013 through 2017

7/01/13 Prepaid Life Insurance 120,000

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Assets Held for Sale

Cash 120,000
12/31/13 Life Insurance Expense (120,000 X 6/12) 60,000
Prepaid Life Insurance 60,000

06/30/14 Prepaid Life Insurance 120,000

Cash 120,000

12/31/14 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

06/30/15 Prepaid Life Insurance 120,000

Cash 120,000

12/31/15 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

06/30/16 Prepaid Life Insurance 120,000

Cash 120,000

12/31/16 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

12/31/16 Cash Surrender Value* 36,000

Life Insurance Expense 36,000

06/30/17 Prepaid Life Insurance 120,000

Cash 120,000

12/31/17 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

Cash Surrender Value 13,000

Life Insurance Expense 13,000

03/31/18 Life Insurance Expense 30,000

Prepaid Life Insurance 30,000

Receivable from Insurance Company 4,000,000

Prepaid Life Insurance 30,000
Cash Surrender Value 49,000
Gain on Insurance Settlement 3,921,000

*The cash surrender value of life insurance may be recognized on the anniversary date
(June 30, 2016 and every June 30 thereafter). No proportionate adjustment, however, is
necessary at year end because there is no actual increase in cash surrender between
anniversary dates.

(b) If the president or his heirs were the beneficiaries of the policy, the premiums paid shall
be charged to employees benefit expense and no cash surrender value will be set up by
the company.

8-8. (Solidbank)

(a) P10,000,000 x 0.3220 = P3,220,000

(b) Interest Income in 2016 = 12% x P3,220,000 = P386,400

(c) 1/1/16 Advances to Officers 3,220,000

Prepaid Compensation Expense 6,780,000
Cash 10,000,000

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12/31/16 Advances to Officers 386,400

Interest Revenue 386,400

Compensation Expense 678,000

Prepaid Compensation Expense 678,000
6,780,000/10

12/31/17 Advances to Officers 432,768

Interest Revenue 432,768
(3,220,000 + 386,400) x 12%

Compensation Expense 678,000

Prepaid Compensation Expense 678,000

(d) Amortized Cost, December 31, 2017 = 3220,000 + 386,400 + 432,768 = 4,039,168

8-9. (Patriarch, Inc.)

(a) 12/31/16 Machinery Group Held For Sale 1,400,000

Accumulated Depreciation – Machinery 1,200,000
Impairment Loss – Machinery 200,000
Machinery 2,200,000
Machinery Tools 380,000
Machinery Parts 220,000

(b) 07/17/17 Cash (1,520,000 – 60,000) 1,460,000

Machinery Group Held For Sale 1,400,000
Gain on Sale of Machinery 60,000

8-10. (Invecargill Ltd.)

(a) 08/01/16 Impairment Loss – Equipment 15,000

Loss from Decline in NRV of Inventory 5,000
Accumulated Depr- Equipment 15,000
Inventory 5,000

(b) Assets Held for Sale 350,000

Accumulated Depreciation 95,000
Impairment Loss 30,000
Plant 220,000
Equipment 160,000
Inventory 75,000
Goodwill 20,000

(c) 02/01/17 Cash (380,000 – 30,000) 350,000

Assets Held For Sale 350,000

8-11. Cost = 42,000 ÷(3/5) = 70,000 Accumulated Depreciation = 70,000 – 42,000 = 28,000

(a) Mar. 31 Depreciation Expense (14,000 x 3/12) 3,500

Accumulated Depreciation 3,500

Asset Held for Sale 36,000

Impairment Loss 2,500
Accumulated Depreciation 31,500
Equipment 70,000

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Assets Held for Sale

Dec. 31 Asset Held for Sale 2,500

Recovery of Previous Impairment 2,500

(b) Dec. 31 Impairment Loss 1,000

Asset Held for Sale 1,000

MULTIPLE CHOICE QUESTIONS

Theory

MC1 C MC6 C MC11 B MC16 A

MC2 C MC7 C MC12 B MC17 B
MC3 A MC8 D MC13 A MC18 A
MC4 B MC9 B MC14 D
MC5 B MC10 A MC15 B

Problems

MC19 B Land for undetermined future use P10 million

Vacant building to be leased out under operating lease 20 million
Total investment property in the consolidated statement P30 million

MC20 A Transfer is from owner-occupied property; excess of fair value

over carrying amount (28M-20M and 35M-30M) is credited to
revaluation surplus. P0

MC21 D Fair value at time of transfer 20,000,000 – 15,000,000 P20 million

Carrying value 15 million
Amount taken to profit or loss P 5 million

MC22 D Carrying value (18,000,000 x 39/40) P17,550,000

Depreciation expense (18,000,000/40 years) P 450,000

MC23 C Fair value FV P20,000,000

Gain (20,000,000 – 18,000,000) P 2,000,000

MC24 A Annual insurance premium P110,000

Increase in cash surrender value (115,000 – 80,000) 35,000
Life insurance expense for the year P75,000

MC25 C Carrying amount of the note on June 30, 2015

(2,000,000 x 0.7972) P1,594,400
Amortization of discount for six months (1,594,400 x 12% x 95,664
6/12)
Carrying amount of the note on December 31, 2015 P1,690,064

MC26 B Cash surrender value, January 1 P100,000

Increase in cash surrender value (200,000 – 160,000) 40,000
Cash surrender value, December 31 P200,000

MC27 D Net annual premium (40,000 – 6,000) P34,000

Increase in cash surrender value (108,000 – 87,000) 21,000
Life insurance expense P13,000

MC28 B Bond sinking fund, January 1 P2,250,000

Additional investment to the fund 450,000
Dividend revenue on equity securities investments 75,000
Interest revenue on debt securities investments 150,000
Administration costs (25,000)

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Bond sinking fund, December 31 P2,900,000

MC29 C Desired accumulated fund 5,000,000/ 5.11 = 978,500 P5,000,000
Future amount of annuity in advance at 10% for 4 periods ÷ 5.11
Annual deposit P978,500

MC30 D Asset is measured at the lower of carrying value and fair value
less cost to sell (9.0M – 1.5M = 7.5M) or 8.0M P7,500,000

MC31 D Selling price less cost to sell (9,200,000 – 1,300,000) P7,900,000

Carrying amount (lower) 7,500,000
Profit (increase) P 400,000

MC32
C Fair value less cost to sell, December 31 (5,500,000 – 300,000) P5,200,000
Fair value less cost to sell, June 30 (4,500,000 – 300,000) 4,200,000
Increase in fair value less cost to sell P1,000,000
Amount of gain, however, is limited to the previous loss
recognized on June 30 (5,000,000 – 4,200,000) P 800,000

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