Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2908-Investment Property OCTOBER 2020

DISCUSSION PROBLEMS
1. Investment property is property (land or a building—or
part of a building—or both) held (by the owner or by
the lessee as a right-of-use asset)
a. To earn rentals or for capital appreciation or both. 5.
b. For use in the production or supply of goods or
services or for administrative purposes.
c. For sale in the ordinary course of business.
d. Any of these.
2. In the normal course of its business, a real estate
developer purchases the following raw land:
• Land A - The entity has plans to construct and
develop the parcel of land as a residential
subdivision for sale as approved by the entity’s
Board of Directors. The preparation of the master
plan, detailing the plans as residential property,
has commenced but the entity intends to start the
physical construction activities (e.g. excavation)
two years from the government approval of the
master plan.
• Land B –The entity has plans to construct and
develop the parcel of land as a residential 6.
subdivision for sale as approved by the entity’s
Board of Directors. The preparation of the master
plan, detailing the plans, has not commenced.
• Land C - The entity intends to develop the land
into a commercial center for lease but preparation
of master plan has not commenced and the entity
does not intend to commence the physical
construction activities within the year.
• Land D - The entity purchased the parcel of land to
establish presence in the location but does not
have any concrete plans on how to develop the
property.
In accordance with PIC Q&A No. 2018-11, which land
should be classified as investment property?
a. Land A, B, C and D c. Land B and C
b. Land B, C and D d. Land C and D
3. Which of the following is (are) incorrect if the owner
uses part of the property for its own use, and part to
earn rentals or for capital appreciation?
a. If the portions can be sold or leased out
separately, they are accounted for separately.
b. If the portions can be sold or leased out
separately, the part that is rented out is
investment property.
c. If the portions cannot be sold or leased out
separately, the property is investment property
even if the owner-occupied portion is significant.
d. All of the above
4. Which statement is correct regarding separation of
property and classification as investment property in
accordance with PIC Q&A No. 2017-10?
a. To separately account for the portions of a
property, the property must be in a state and
condition to enable it to be disposed of separately
at the end of the reporting period.
b. If the property requires sub-division before the
portions could be disposed of separately, then
those parts are not accounted for separately until
such sub-division occurs.
c. Both a and b.
d. Neither a nor b.
Which of the following is (are) incorrect if the entity
provides ancillary services to the occupants of a
property held by the entity?
a. The appropriateness of classification as investment
property is determined by the significance of the
services provided.
b. If the services provided are relatively insignificant
component of the arrangement as a whole (for
instance, the building owner supplies security and
maintenance services to the lessees), then the
entity may treat the property as investment
property.
c. Where the services provided are more significant
(such as in the case of an owner-managed hotel),
the property should be classified as investment
property.
d. All the statements are correct.
Solano Company is considering the appropriate
classification of the following items:
Land held for long-term capital
appreciation P15,000,000
Land held for undecided future use 30,000,000
Building leased out under an operating
lease 75,000,000
Building leased out under a finance lease 45,000,000
Vacant building held to be leased out
under an operating lease 8,000,000
Property held for use in the production
or supply of goods or services 6,000,000
Property held for administrative
purposes 9,000,000
Property held for sale in the ordinary
course of business 2,000,000
Property held in the process of
construction or development for sale 3,000,000
Property being constructed or developed
on behalf of third parties 12,000,000
Property held for future use as owner-
occupied property 4,000,000
Property held for future development
and subsequent use as owner-
occupied property 4,400,000
Property occupied by employees 3,600,000
Owner-occupied property awaiting
disposal 750,000
Property that is being constructed or
developed for use as an investment
property 12,000,000
Existing investment property that is
being redeveloped for continuing use
as investment property 24,000,000
Building held for administrative purposes
and leased out under operating lease
(60% is for administrative purposes) 15,000,000
Building leased out under an operating
lease (the entity supplies security and
maintenance services to the lessees) 30,000,000

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EXCEL PROFESSIONAL SERVICES, INC.

How much is the total amount that would normally be Use the following information for the next two questions.
reported as investment property?
An entity acquired a building for the purpose of leasing it on
a. P200 million c. P170 million
1 January 2020 for P50 million. At that date the building
b. P188 million d. P158 million
had a useful life of 40 years. At 31 December 2020 the fair
value of the building was P51 million.
7. Quirino, Inc. and its subsidiaries have provided you,
their PFRS specialist, with a list of the properties they
11. If the entity chooses the fair value model, the entity
own:
should
• Land held by Quirino, Inc. for undetermined future
a. Recognize depreciation of P1.25 million in its 2020
use, P5,000,000.
profit or loss.
• A vacant building owned by Quirino, Inc. and to be
b. Recognize the building in its 31 December 2020
leased out under an operating lease, P20,000,000.
statement of financial position at P48.75 million.
• Property held by a subsidiary of Quirino, Inc., a
c. Recognize gain of P1 million in its 2020 profit or
real estate firm, in the ordinary course of its
loss.
business, P30,000,000.
d. Do both a and b.
• Property held by Quirino, Inc. for use in
production, P1,000,000.
12. If the entity chooses the cost model, the entity should
• A hotel owned by Sugo, Inc., a subsidiary of
a. Recognize the building in its 31 December 2020
Quirino, Inc., and for which Sugo, Inc. provides
statement of financial position at P51 million.
security services for its guests’ belongings,
b. Not depreciate the building.
P50,000,000.
c. Disclose fair value of the building.
• A building owned by Quirino, Inc. being leased out
d. Do both a and b.
to Status, Inc, a subsidiary of Quirino, Inc.,
P20,000,000.
13. PAS 40 requires all entities to
How much will be reported as investment properties in a. Measure the fair value of investment property.
Quirino, Inc. and its subsidiaries consolidated financial b. Measure the fair value of investment property on
statements? the basis of a valuation by an independent valuer
a. P75,000,000 c. P95,000,000 who holds a recognized and relevant professional
b. P25,000,000 d. P45,000,000 qualification.
c. Both a and b.
8. In accordance with PIC Q&A No. 2017-6, which of the d. Neither a nor b.
following collector’s items (e.g. paintings, rare items,
vintage items, classic cars) can be accounted for in 14. The carrying amount of an item of investment property
accordance with PAS 40? shall be derecognized
a. Collector’s items for administrative or aesthetic a. On disposal.
purposes. b. When it is permanently withdrawn from use and no
b. Collector’s items for short-term investment future economic benefits are expected from its
purposes. The entity also trades these collector’s disposal.
items in the ordinary course of business. c. Either a or b.
c. Collector’s items for long-term investment purposes. d. Neither a nor b.
The entity does not trade these collector’s items in
the ordinary course of business. 15. The Conehead Company purchased an investment
d. None of these. property on 1 January 2016 for a cost of P220,000. The
property had a useful life of 40 years and at 31
9. An owned investment property shall be recognized as December 2019 had a fair value of P300,000. On 31
an asset when, and only when: (a) it is probable that December 2020 the property was sold for P290,000
future economic benefits that are associated with the incurring disposal costs of P10,000. Conehead uses the
investment property will flow to the entity; (b) the cost cost model to account for investment properties.
of the investment property can be measured reliably.
What is the gain or loss to be recognized in profit or loss
This principle applies to
for the year ended 31 December 2020 regarding the
a. Costs incurred initially to acquire an investment
disposal of the property?
property.
a. P97,500 gain c. P20,000 loss
b. Costs incurred subsequently to add to, replace part
b. P87,500 gain d. P10,000 loss
of, or service a property.
c. Both a and b.
d. Neither a nor b.
16. Transfers to, or from, investment property should only
be made when there is a change in use, evidenced by:
10. Which statement is incorrect regarding the use of the
I. Commencement of owner-occupation
fair value model?
II. Commencement of development with a view to
a. After initial recognition, an entity shall measure all
sale
of its investment property at fair value.
III. End of owner-occupation
b. A gain or loss from a change in the fair value of
IV. Commencement of an operating lease to another
investment property shall be recognized in profit or
party
loss for the period in which it arises.
c. There is a rebuttable presumption that an entity a. I, II, III and IV c. I and IV only
can reliably measure the fair value of an b. I, II and IV only d. IV only
investment property on a continuing basis.
d. A change from the fair value model to the cost
model likely results in a more relevant
presentation.

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EXCEL PROFESSIONAL SERVICES, INC.
17. Which of the following will most likely result to
reclassification?
a. An entity decided to dispose of an investment
property without development.
b. An entity begins to redevelop an existing
investment property for continued future use as
investment property.
c. Both a and b.
d. Neither a nor b.
18. When an entity uses the cost model, transfers between
categories (investment property, owner-occupied
property and inventories)
a. Do not change the carrying amount of the property
transferred.
b. Do not change the cost of the property for
measurement purposes.
c. Do not change the cost of the property for
disclosure purposes.
d. All of the above.
19. Which statement is incorrect regarding transfers
between categories when an entity uses the fair value
model?
a. For a transfer from investment property to owner-
occupied property or inventories, the fair value at
the change in use is the 'cost' of the property
under its new classification.
b. For a transfer from inventories to investment
property, any difference between the fair value at
the date of transfer and its previous carrying
amount should be recognized in profit or loss for
the period.
c. For a transfer from owner-occupied property to
investment property, PAS 16 should be applied up
to the date of reclassification. Any difference
arising between the carrying amount under PAS 16
at that date and the fair value is dealt with as a
revaluation under PAS 16.
d. None, all the statements are correct.
Use the following information for the next two questions.
Diffun, Inc. owns a building purchased on January 1, 2016
for P50 million. The building was used as the company’s
head office. The building has an estimated useful life of 25
years. In 2020, the company transferred its head office
and decided to lease out the old building. Tenants began
occupying the old building by the end of 2020. On
December 31, 2020, the company reclassified the building
as investment property. The fair value on the date of
reclassification was P42 million.
20. If the entity uses the cost model, how much should be
recognized in the 2020 profit or loss as a result of the
transfer from owner-occupied to investment property?
a. P8,000,000 c. P500,000
b. P2,000,000 d. Nil
21. If the entity uses the fair value model, how much
should be recognized in the 2020 profit or loss as a
result of the transfer from owner-occupied to
investment property?
a. P8,000,000 c. P500,000
b. P2,000,000 d. Nil
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Use the following information for the next two questions.
Cute Corporation owns the following properties at 1
January 2020:
Property A
An office building used by Cute for administrative purposes
with a depreciated historical cost of P2 million. At 1
January 2020 it had a remaining life of 20 years. After a
re-organization on 1 July 2020, the property was leased to
a third party and reclassified as an investment property
applying Cute’s policy of the fair value model. An
independent valuer assessed the property to have a fair
value of P2.3 million at 1 July 2020, which had risen to
P2.34 million at 31 December 2020.
Property B
Another office building sub-leased to a subsidiary of Cute.
At 1 January 2020, it had a fair value of P1.5 million which
had risen to P1.65 million at 31 December 2020. At 1
January 2020 it had a remaining life of 15 years.
Determine the amounts that should be recognized by the
entity in its separate financial statements in respect of
these properties for the year ended December 31, 2020 for
the following:
22. Net amount in profit or loss
a. P540,000 c. P190,000
b. P490,000 d. P140,000
23. Net amount in other comprehensive income
a. P500,000 c. P300,000
b. P350,000 d. Nil
24. An entity shall disclose:
a. Whether it applies the fair value model or the cost
model.
b. The existence and amounts of restrictions on the
realisability of investment property or the
remittance of income and proceeds of disposal.
c. Contractual obligations to purchase, construct or
develop investment property or for repairs,
maintenance or enhancements.
d. All of these.
25. An entity shall disclose the amounts recognized in
profit or loss for:
a. Rental income from investment property.
b. Direct operating expenses (including repairs and
maintenance) arising from investment property
that generated rental income during the period.
c. Direct operating expenses (including repairs and
maintenance) arising from investment property
that did not generate rental income during the
period.
d. All of these.
26. Regardless of the model used, an entity shall disclose
a. The depreciation methods used.
b. The amount of impairment losses recognized, and
the amount of impairment losses reversed, during
the period.
c. Net gains or losses from fair value adjustments.
d. Reconciliation between the carrying amounts of
investment property at the beginning and end of
the period.
- now do the DIY drill -
FAR.2908
EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. Which of the following would be classified as What is the gain or loss to be recognized in Niagara's
investment property? profit or loss for the year ending 31 December 2020?
I Building held for sale in the ordinary course of a. P18,900 loss c. P30,000 gain
business b. P15,000 loss d. P45,000 loss
II. Building held to earn rentals under operating
leases.
III. Land held for capital appreciation. Use the following information for the next two questions.
IV. Land held for undetermined future use
Aglipay, Inc. completed the construction of a shopping mall
V. Equipment held to earn rentals under operating
at the end of 2018 for a total cost of P100 million. The
leases.
mall has an estimated economic life of 25 years. The mall
a. I, II, III, IV and V
was constructed for the purpose of earning rentals by
b. II, III, IV and V
letting out space in the shopping mall to tenants. The
c. III, IV and V
company opted to use the fair value model to measure the
d. II, III and IV
shopping mall. An independent valuation expert was used
by the company to fair value the shopping mall on an
2. Which of the following is not an investment property?
annual basis. According to the fair valuation expert the
a. A property held to earn rentals and an insignificant
fair values of the shopping mall at the end of 2019 and
portion is held for administrative purposes.
2020 were P120 million and P115 million, respectively.
b. An office building held to earn rentals where the
owner provides security and maintenance services 6. How much should be recognized in profit or loss in
to the lessees who occupy the building. 2020 as a result of the fair value changes?
c. An owner-managed hotel. a. P23,000,000 c. P5,000,000
d. A property leased to and occupied by a subsidiary b. P15,000,000 d. P 0
in the lessor’s separate financial statements.
7. How much is the carrying amount of the shopping mall
3. In accordance with PAS 40, depreciation on investment on December 31, 2020 if Aglipay used the cost model?
property, if applicable, is recognized under a. P100,000,000 c. P96,000,000
b. P115,000,000 d. P92,000,000
Cost Model Fair Value Model
a. Yes Yes 8. Transfer from investment property to property, plant,
b. Yes No and equipment is appropriate
c. No Yes a. When there is change in use
d. No No b. Based on the entity’s discretion
c. Only when the entity adopts the fair value model
4. The Buckethead Company has a single investment under PAS 40
property which had originally cost P580,000 on 1 d. The entity can never transfer property into another
January 2017. At 31 December 2019 its fair value was classification on the balance sheet once it is
P600,000 and at 31 December 2020 it had a fair value of classified as investment property
P590,000. On acquisition, the property had a useful life
of 40 years. 9. The following will most likely result to reclassification,
except
What should be the expense recognized in Buckethead's
a. Commencement of owner-occupation.
profit or loss for the year ended 31 December 2020
b. End of owner-occupation.
under each of the fair value model and the cost model?
c. Commencement of an operating lease to another
Fair value model Cost model party.
a. P14,750 P14,500 d. Redevelopment of an existing investment property.
b. P10,000 P14,500
c. P24,500 P10,000 10. Han, Inc. owns a building purchased on January 1,
d. P10,000 P14,750 2016 for P100 million. The building was used as the
company’s head office. The building has an estimated
5. The Niagara Company owns three properties which are useful life of 25 years. In 2020, the company
classified as investment properties according to PAS40 transferred its head office and decided to lease out the
Investment property. Details of the properties are given old building. Tenants began occupying the old building
below (amounts in thousands): by the end of 2020. On December 31, 2020, the
Initial Fair value at Fair value at company reclassified the building as investment
cost 31 Dec 2019 31 Dec 2020 property to be carried at fair value. The fair value on
Property (1) 270 320 350 the date of reclassification was P70 million. How much
Property (2) 345 305 285 should be recognized in the 2020 profit or loss as a
Property (3) 330 385 360 result of the transfer from owner-occupied to
investment property?
Each property was acquired in 2016 with a useful life of a. P14,000,000 c. P10,000,000
50 years. The company's accounting policy is to use the b. P 4,000,000 d. P 0
fair value model for investment properties.
J - end of FAR.2908 - J

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