INVESTMENT PROPERTY

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PROBLEM 1:

From the items listed below, how much is the total amount to be presented as investment
property in the statement of financial position?
Real property held for resale in the ordinary course of business 500,000
Real property held for speculation purposes 700,000
Real property held as a current factory site 1,000,000
Real property of a manufacturing business being leased out to another party
under operating lease 900,000
Land held for undetermined future use 800,000
Land held to be used as a future plant site 400,000
Building being developed as an investment property (Construction in progress) 300,000
Building being developed as future factory/plant stie (Construction in progress) 250,000

PROBLEM 2:

Act Company acquired an investment property with an installment price of P2,400,000. The
acquisition of the property requires a down payment of 20% and a non-interest bearing note
payable at the end of each year for five years. The prevailing market rate if interest for
similar instrument is 12%. Act Company incurred brokers’ fees and commissions amounting
to P50,000 for the property. What is the initial cost of the property?

PROBLEM 3:

On January 2, 2015 Jelly Company acquired a real property for speculation purposes with the
intention of selling it at a higher price. The property was acquired at cash price of
P1,000,000. The company paid property taxes amounting to P100,000 covering the years
2014 and 2015. How much should Jelly Company record the investment at initial recognition?

PROBLEM 4:

On June 30, 2015 Jordan Corp. exchanged a land held as a future plant site which was
originally acquired in 2013 at a cost of P2,200,000 for another land owned by Morone Corp.
The land of Morone had a carrying value in its books at P2,500,000. On the transaction date
Jordan’s land had a fair market value of P2,400,000. Jordan paid cash to Morone at P400,000.
The new land acquired by Jordan shall be held for speculation purposes.

Q1: If the exchange has the necessary commercial substance, how much should Jordan
recognize the new land acquired and how much is the gain or loss on exchange?

Q2: If the exchange has no commercial substance, how much should Jordan recognize the
new land and how much is the gain or loss on exchange?

PROBLEM 5:

At the beginning of the year 2014, Trunk Company has an investment property acquired at
cost of P1,000,000 that is to be accounted under the cost model. 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. The property had a fair
market value of P1,150,000 and P900,000 at the end of 2014 and 2015, respectively.
Estimated cost to sell was constant at P50,000. The present value of the estimated net future
cash flows from continued use and eventual disposal was at P1,090,000 and P860,000 in at
the end of 2014 and 2015 respectively.

Q1: What should be the carrying value of the investment at the end of the year 2015?

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 INVESTMENT PROPERTY
/CTESPENILLA PAGE 2

Q2: If the fair value method is used, what is the unrealized holding gain on the asset to be
recognized in the 2015 profit or loss?

PROBLEM 6:

The initial cost of investment in property was at P1,000,000. A current balance sheet, it has a
carrying value of P1,200,000. If at balance sheet, the investment is reclassified as plant
asset, what is the gain or loss to be recognized in the profit or loss if the prevailing fair market
value of the asset on the reclassification date is at P1,500,000?

PROBLEM 7:

The initial cost of investment was P1,000,000. At present balance sheet, it has a carrying
value of P900,000 using the cost model. It is to be transferred to plant asset. At the date of
transfer, the fair value of the property is P800,000. What is the gain or loss to be recognized
in the profit or loss on the reclassification date?

PROBLEM 8:

Whale’s property carried as plant asset at P1,200,000 is to be converted into investment

property. The fair value at date of conversion is P1,500,000. Assuming the company uses the
cost model to value its investment properties, what is the gain or loss to be recognized in the
profit or loss on the reclassification date?

PROBLEM 9:

On January 2, 2014, Finance Company converted its occupied property to investment property
that is to be carried at fair value. The carrying value of the property in the company’s books
is P4,000,000. The company uses the fair market value model to value its investment
properties.

Q1: Assuming the fair value of the property on the date of transfer or conversion is
P3,800,000. How much gain or loss should be recognized in the profit or loss?

Q2: Assuming the fair value of the property on the date of transfer or conversion is
P4,400,000. How much gain or loss should be recognized in the profit or loss?

PROBLEM 10:

On January 2, 2014, Grand Company made a test of impairment on one of its building 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, 2014 is P8,000,000 with a
remaining useful life of 10 years.

On January 1, 2016, Grand 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 gain should be recognized in the profit or loss on the
reclassification date?

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 INVESTMENT PROPERTY
/CTESPENILLA PAGE 3

PROBLEM 11:

A building acquired at a cost of P24,000,000 has an estimated life of 20 years. It is being

depreciated using the straight-line method, without scrap. After five years of using the asset
the building was revalued and has a fair value of P27,000,000. After another five years the
building was converted into investment property. At the time of conversion the building has a
fair value of P8,000,000. To record the conversion, the conversion loss to be reported in the
current year’s income is:

PROBLEM 12:

Kikio Corporation acquired on January 1, 2014 a real property and classified the same as an
investment property. The acquisition cost was P10,000,000 and has an estimated life of 10
years. The company paid for a finder’s fee and commissions at P500,000.

The investment property was appraised at P12,500,000 on December 31, 2014 and
P11,000,000 on December 31, 2015.

Requirements:
Case 1: Assuming that the company uses the Fair value Method:

1. How much should the investment property be presented in the 2014 statement of
financial position?

2. How much gain/loss related to the investment should be recognized in the 2014
income statement?

3. How much should the investment property be presented in the 2015 statement of
financial position?

4. How much gain/loss related to the investment should be recognized in the 2015
income statement?

5. Assuming that the real property was reclassified as owner-occupied property on June
30, 2016, when the fair value of the investment was at P10M, how much should the
property be initially recognized upon transfer?

6. Based on the previous item, how much gain/loss from reclassification should be
recognized in the income statement?

7. Assuming the real property was sold on June 30, 2016 at P10M, how much is the
realized gain/loss on the disposal?

Case 2: Assuming that the company uses the Cost Method:

1. How much should the investment property be presented in the 2014 balance sheet?

2. How much should the investment property be presented in the 2015 balance sheet?

3. Assuming that the real property was reclassified as owner-occupied property on June
30, 2016, when the fair value of the investment was at P10M, how much should the
property be initially recognized upon transfer and how much gain/loss from
reclassification should be recognized?

4. Assuming the real property was disposed on June 30, 2016 at P10M, how much is the
realized gain/loss on the disposal?

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