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
D. Rental property
B. Mining property

1. 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
1. 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

1. 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

1. 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.

1. 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.

1. 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.
 1. 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.

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

1. 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 C. Historical cost
cost D. Assessed value
B. Appraised value

1. 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

1. 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
1. 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

1. 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

1. 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

1. 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

1. 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

1. 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

1. 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

1. 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

1. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist,
with a list of the properties they own:
 Land held by Quirino, Inc. for undetermined future use, P5,000,000.
 A vacant building owned by Quirino, Inc. and to be leased out under an
operating lease, P20,000,000.
 Property held by a subsidiary of Quirino, Inc., a real estate firm, in the
ordinary course of its business, P30,000,000.
 Property held by Quirino, Inc. for use in production, P1,000,000.
 A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which
Sugo, Inc. provides security services for its guests’ belongings,
P50,000,000.
 A building owned by Quirino, Inc. being leased out to Status, Inc, a
subsidiary of Quirino, Inc., P20,000,000.

How much will be reported as investment properties in Quirino, Inc. and its
subsidiaries consolidated financial statements?
a. P75,000,000 c. P95,000,000
b. P25,000,000 d. P45,000,000