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Discussion QuestionS 1-1:

Nature of investment property

1. Define investment
property and owner-
occupied property.
An investment property is
land or a building (or part of a
building), or both held (by the
owner or by the lessee under a
finance lease) to earn rentals or for
capital appreciation or both, rather
than for use in the production or
supply of goods or services or for
administrative purposes or sale in
the ordinary course of business.
An owner-occupied
property is property held by
the owner or by the lessee
under a finance lease for use in
the production or supply of
goods or services or for
administrative purposes.
2. What are the initial
recognition criteria for
investment property?
How should it be
measured initially and
subsequently?
Investment property should be
recognized as an asset when, and
only when
(a) it is probable that the future
economic benefits that are
associated with the investment
property will flow to the entity;
and
(b) the cost of the investment
property can be measured
Investment property is initially
measured at cost, including
transaction costs. Such cost
should not include start-up
costs, abnormal waste, or
initial operating losses
incurred before the
investment property achieves
IAS 40 permits entities to
choose between:
(a) fair value model
(b) cost model
One method must be adopted
for all of an entity's investment
property. Change is permitted
only if this results in a more
appropriate presentation.
3. Considering the nature,
initial recognition and
subsequent measurement
of investment property,
what are the usual
assertions tested with
regard investment
Assertions Descriptions
1. Existence Acquisitions and disposals are properly authorized.
The recorded assets really exist.
2. Rights and obligations The recorded assets are owned by the company.
Disposals of assets represent the transfer of the risks and benefits in
them to third parties.

3. Completeness Acquisitions and disposals, excluding the revenue items, are


included in asset account.
All assets owned by the company are recorded.
All depreciation is recorded in the accounting records and costing
records.
4. Accuracy Acquisitions and disposals of assets are correctly calculated in
accordance with relevant accounting principles and proper
capital/revenue decision.
Depreciation is correctly calculated using appropriate depreciation
methods and useful lives.
5. Valuation and allocation The carrying amount of assets reflects events affecting their
valuation in accordance with relevant accounting standards.

6. Classification Capital expenditure and revenue expenditure, and finance lease and
operating lease are properly classified.

7. Presentation and Cost or revalued amount of assets and related accumulated


disclosure depreciation have been properly summarized for disclosure in the
financial statements.
4. Referring to question
#3, enumerate possible
risks for each assertion.
May not be completely and accurately recorded
All recorded investment properties may not
actually exist.
Investment properties are recorded at
inappropriate values.
Investment properties recorded are owned by
the client and title is not in the name of client.
Depreciation expense / gain /loss due to change
in fair value and gain/ loss on disposal has been
inaccurately calculated and inappropriately
disclosed.
Discussion Question 1-2:
Substantive Procedures
over Investment Property*

Refer to Louwers
Question 8.47 page 338.
*Property, plant and equipment terms
are assumed to be investment
property
REQUIRED: For each of the assertions, select the one best
substantive audit procedure for obtaining competent evidence.

1) The entity has legal right to property and equipment acquired


during the year
A Trace opening balances in the summary schedules to the prior-year audit
documentation
B Review the provision for depreciation expense and determine whether depreciable
lives and methods used in the current year are consistent with those used in the prior
year
C Determine whether the responsibility for maintaining the property and equipment
records is separated from the responsibility for custody of property and equipment
D Examine deeds and title insurance certificates
E Perform cutoff to verify that property and equipment additions are recorded in the
proper period
F Determine whether property and equipment are
adequately insured
G Physically examine all major property and equipment additions
2. Recorded investments represent investments actually owned
at the balance sheet date.
A Trace opening balances in the summary schedules to the prior-year audit
documentation
B Review the provision for depreciation expense and determine whether depreciable
lives and methods used in the current year are consistent with those used in the prior
year
C Determine whether the responsibility for maintaining the property and equipment
records is separated from the responsibility for custody of property and equipment
D Examine deeds and title insurance certificates
E Perform cutoff to verify that property and equipment
additions are recorded in the proper period
F Determine whether property and equipment are adequately insured
G Physically examine all major property and equipment additions
3. Trading investments are properly valued at fair market value
at the balance sheet date.
A Trace opening balances in the summary schedules to the prior-year audit
documentation
B Review the provision for depreciation expense and
determine whether depreciable lives and methods used in
the current year are consistent with those used in the
prior year
C Determine whether the responsibility for maintaining the property and equipment
records is separated from the responsibility for custody of property and equipment
D Examine deeds and title insurance certificates
E Perform cutoff to verify that property and equipment additions are recorded in the
proper period
F Determine whether property and equipment are adequately insured
G Physically examine all major property and equipment additions
PART II:
NONCURRENT ASSETS
HELD FOR SALE AND
DISCONTINUED
OPERATIONS
Discussion Questions 1-1:
Nature of Noncurrent Assets Held for Sale and
Discontinued Operations

1. Define the following terms:


a. Noncurrent assets held
for sale
b. discontinued operation
c. component of an entity
Non-Current Assets (or
disposal group) Held for Sale
A group of assets to be
disposed of, by sale or
otherwise, together as a group
in a single transaction, and
liabilities directly associated
with those assets that will be
transferred in the transaction.
Discontinued Operation
A component of an entity that either has
been disposed of or is classified as held
for sale and:
(a)represents a separate major line of
business or geographical area of
operations,
(b) is part of a single coordinated plan to
dispose of a separate major line of
business or geographical area of
operations or
Component of an Entity
Operations and cash flows
that can be clearly
distinguished, operationally
and for financial reporting
purposes, from the rest of
the entity.
2. What are the initial
recognition criteria for
noncurrent assets held
for sale? How should it
be measured initially and
subsequently?
An entity shall classify a
non-current asset (or
disposal group) as held for
sale if its carrying amount
will be recovered principally
through a sale transaction
rather than through
continuing use.
Two conditions should be met to satisfy this criterion.
(a) the asset (or disposal group) must be available for
immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets
(or disposal groups); and
(b) the sale must be highly probable. This means that
- the appropriate level of management must be committed
to a plan to sell the asset (or disposal group)
- an active programme to locate a buyer and complete the
plan must have been initiated
- the asset (or disposal group) must be actively marketed
for sale at a price that is reasonable in relation to its
current fair value
- the sale should be expected to qualify for recognition as
a completed sale within one year from the date of
classification, unless the delay is caused by events or
circumstances beyond the entitys control
An entity shall measure a non-current
asset (or disposal group) classified as held
for sale at the lower of its carrying
amount and fair value less costs to sell.
When the sale is expected to occur
beyond one year, the entity shall measure
the costs to sell at their present value.
Any increase in the present value of the
costs to sell that arises from the passage
of time shall be presented in profit or loss
as a financing cost.
Impairment must be considered at the time of
classification as held for sale and subsequently.

Any subsequent increases in fair value less cost


to sell of the asset can be recognized in profit
and loss to the extent that it is not in excess of
the cumulative impairment loss that has been
recognized.

Non-current assets or disposal groups


classified as held-for-sale should not be
depreciated.
3. If a noncurrent asset (or
disposal group) is to be
abandoned, can it be classified
as held-for-sale in accordance
with PFRS 5? What if the said
abandoned property is also a
discontinued operation, can it
be classified as such in
An entity shall not classify as held for sale a non-
current asset (or disposal group) that is to be
abandoned. This is because its carrying amount will be
recovered principally through continuing use.
However, if the disposal group to be abandoned
meets the criteria in paragraph 32(a)(c), the entity
shall present the results and cash flows of the disposal
group as discontinued operations in accordance with
paragraphs 33 and 34 at the date on which it ceases to
be used. Non-current assets (or disposal groups) to be
abandoned include non-current assets (or disposal
groups) that are to be used to the end of their
economic life and non-current assets (or disposal
groups) that are to be closed rather than sold.
Problem 1-2:
Timing of Recognition of Noncurrent Assets
Held for Sale and Presentation of
Discontinued Operations
Required:
a. What date can the Athletic
Rubber Shoes asset segment be
classified as Noncurrent Asset
Held for Sale? What period (from
January 1 to which date) would
the Income Statement cover the
Athletic Rubber Shoes segment shall be
classified as Held for Sale only after the
fulfilment of its commitment with DLSUs
Green Archer, which is on or before May
31, 20x0, and is covered in the Financial
Statements for the year ended December
31, 20x0, same period in which the
discontinued operation has been
classified as held for sale.
Required:

b. What date can the Leisure flip flop


asset segment be classified as
Noncurrent Asset Held for Sale? What
period (from January 1 to which date)
would the Income Statement cover the
related discontinued operations of this
segment?
The Leisure flip flop were decided to be
abandoned on April 30, 20x0 thus cannot
be classified as Non-current Asset Held
for Sale. This discontinued operation shall
be covered in the period on which it is
actually abandoned.