PRELIMS FEBRUARY 18, 2023

PRE 3 Auditing and Assurance Concepts and Applications

NAME OF STUDENT _________________________________ COURSE/BLOCK___________________

Test 1. Matching (10 points)

ANSWER PARTICULARS ITEM OF CHOICE

1. It is a _______ from disposal of investment property which is the excess of the net A. Carrying amount
disposal proceeds after deducting the carrying amount of the investment property
2. The account used for the difference between the carrying amount and fair value if B. PFRS 5
the owner-occupied property is to be transferred as investment property under the fair
value model
3. When the fair value of the investment property increased compared to its carrying C. Fair Value Model
amount at the start of the year, what is the treatment of the amount of difference.
4. When cost model is used by an entity, transfers between investment property, D. Identifiability
owner-occupied property and inventory shall be made at this amount.
5. When an investment property is carried at fair value, any changes in the fair value is E. Gain
reported in ______________.
6. After initial recognition, an entity that chooses the cost model shall measure the F. Investment
investment property in accordance with ______ Property
7. Under this model, transfer from investment property shall be made at __________ G. Revaluation
8. This subsequent measurement of investment property carry the investment losses H. Income Statement
with Fair Value Disclosure.
9. It refers to land or buildings held primarily to earn rentals or for capital appreciation. I. Cost Model
10. Goodwill is not considered to be part of intangible assets since it lacks on of the J. Gain from change
critical attributes of an intangible assets which is ______________ in far value

Test 2. True or False (10 points)

1. Property that is leased to another entity under the finance lease is an example of investment property.
2. For an acquisition of an intangible asset that is a part of a business combination, the cost of an intangible asset is its fair
value at the acquisition date.
3. Property held for future use owner occupied property example of investment property.
4. An investment property held by a lessee as a right of use, asset shall be recognized in accordance with IFRS16.
5. The cost of an investment property does not include operating losses incurred before the investment property achieves
the planned level of occupancy.
6. The cost of an investment property held by a lessee as a right-of-use asset is measured initially at cost in accordance with
IAS 40.
7. The cost of an investment property is not increased by start-up costs (unless they are necessary to bring the property to
the condition necessary for it to be capable of operating in the manner intended by management.
8. Property plant and equipment or intangible assets acquired for research and development that do not have alternative
future use should be charged to research and development expense.
9. The rights of an author shall last during the lifetime of the author and for 50 years after his death and shall not be
assignable or subject to license (Sec 198, RA 8293).
10. Franchise is an agreement in which one party called the franchisor grants certain rights to another party called the
franchisee.

Test 3. Mini Problem (10 points)

1. VRDF Company purchased an investment property on January 1, 20A for a cost of P4,400,000,00. The property had a
useful life of 40 years and on December 31, 20C had a fair value of P6,000,000.00. On December 31, 20C, the property
was sold for net proceeds of 5,800,000. 00. The entity used the cost model to account for the investment property.
1) What is the gain or loss to be recognized for 20C regarding the disposal of the investment property?
2) Prepare the entry to record the disposal under the cost model and revaluation model.

Test 4. Mini Problem (15 points)

2. The DML Corporation venture into construction of high rise building for the purpose of earning rentals by letting out space
to business executives in the area. The construction of the building has been completed on January 1, 20A for a total
cost of P80,000,000. The useful life of the property is for 25 years with a residual value of P8,000,000. An independent
valuation expert provided the fair value at each subsequent year-end:
December 31, 20A 88,000,000
December 31, 20B 84,800,000
December 31, 20C 96,000,000

1) Prepare journal entries for December 20A, December 31, 20B and December 31 20C under the following model:
a) Cost Model
b) Revaluation Model
Test 5. Mini Problem (10 points)
D&R Company has a single investment property which had an original cost of P11,600,000 on January 1, 20A. On December 31,
20A, the fair value was P12,000,000 and on December 31, 2B the fair value was P11,800,000. On acquisition, the property had a
useful life of 40 years.

Prepare the entry to recognize the expense in profit or loss for the year ended December 31, 20B under the fair value model and
cost model.

Prepared by:

VIRGINIA ROWELLA D. FAMARIN, CPA, MBA

Instructor

Noted by:

BONIFACIO TARAPE SR., CPA, MBA

Dean, College of Bachelor of Science in Accountancy

Approved by: