Investment Property Other Non Current Financial Assets and Non Current Assests Held For Sale
Investment Property Other Non Current Financial Assets and Non Current Assests Held For Sale
Investment Property Other Non Current Financial Assets and Non Current Assests Held For Sale
PROBLEMS
8-1. Determine the cost of the following items of investment property acquired by
Sebastian during 2016;
b. Land and building were acquired to be held for lease under operating
leases. The company made a down payment of P4,000,000, issued
20,000 P200 par ordinary shares with market price of P240 per share
and issued a three year non-interest bearing note for P6,000,000. The
note is payable in equal annual installments of P2,000,000 at the end of
each year from the date of purchase. Prevailing interest rate for similar
notes is 10%. Thirty percent (30%) of the purchase price is allocated to
the land.
8-2. Precious Realty Corporation owns and holds several property items that are
held for sale as subdivided lots, condominiums and row houses. In addition, it
also owns the Rainbow Building, which it is leasing to tenants under operating
leases.
In July 2015, because of planned expansion for year 2016, the company served
notices to the Rainbow Building tenants for the termination of lease contracts
on the facilities. On January 2, 2016, the Rainbow Building, which at that date
had a carrying value of P4,000,000, (with cost of P8,200,000) was occupied by
the company to carry out its sale and administrative activities. The corporation
records annual depreciation of P200,000 on the Rainbow Building.
REQUIRED:
8-3. The following information relates to Absolute Company for the year 2016:
REQUIRED:
Using both the cost model and the fair value model, determine the following:
(a.) The amount of investment property that will be shown on December 31,
2016 statement of financial position.
(b.) The accounts and amounts taken to profit or loss relating to the
investment property.
8-4. The Adam Company is in the process of opening a new division as a result of
its expansion. As a consequence, its main operation will be transferred to
Manila. It vacated its land building in Davao and held them for commercial
rental under operation leases. On such date, the land had a carrying amount
of P20,000,000, while the building had a carrying amount of P35,000,000, net
of P15,000,000 accumulated depreciation.
REQUIRED:
Formulate entries for the reclassification of the property, assuming that,
(a.) Adam uses the cost model for its investment property.
(b.) Adam uses the fair value model for its investment property.
8-5. The transaction given below relate to a fund being accumulated by Raymond
Company over a period of 20 years for the construction of additional
buildings.
REQUIRED:
8-6. On January 2, 2016, Cordero Corporation issued P15,000,000 bonds that will
mature in 10 years. The management decided to set up a separate fund for
the retirement of these bonds. The funds is to be placed in a separate account
to be maintained in the company’s depository bank.
REQUIRED:
(a.) Determine the required semiannual deposit that will accumulate
P15,000,000 at the end of 10 years.
(b.) Prepare entries during 2016 as a result of the investment in the funds.
8-7. On July 1, 2012, Dorina Company insured the life of its president for
P4,000,000, paying an annual insurance premium of P120,000. The company
is the designated beneficiary and has the right to cancel the policy at its own
option.
REQUIRED:
(a) Prepare the entries in the books of Dorina Company for years 2013
through 2017. Dorina closes its books on December 31.
Use the asset method for the prepayment of insurance premiums.
(b) How would the entries differ if the president or his heirs were the
beneficiaries of the life insurance policy?
REQUIRED:
(a) At what amount should the receivable from the vice president be taken
up by Solidbank on January 1, 2016?
(b) How much interest income shall be taken up by Solidbank during 2016?
(c) Give the entries in the books of Solidbank for the years 2016 and 2017.
(d) What is the amortized cost of the receivable on December 31, 2017?
8-9. On December 31, 2016, Patriarch Inc. determined to sell a group of assets
within its meat processing plant, as it believed a newly introduced set of
machineries would be more economical for the company. The assets that it
wanted to sell had the following carrying amounts:
Machinery P2,200,000
Accumulated depreciation 1,200,000
Machinery tools 380,000
Machinery parts 220,000
The management of Patriarch, Inc. calculated the fair value (based on active
market for similar assets) less costs to sell of the disposal group to be
P1,400,000.
The assets were sold on March 17, 2017 for P1,520,000. Selling costs of
P60,000 were paid.
REQUIRED:
Carrying amount
Before review After review
Plant (at cost) P220,000 P220,000
Accumulated depreciation (80,000) (80,000)
Equipment 160,000 145,000
Inventory 80,000 75,000
Goodwill 20,000 20,000
Invercargill Ltd. Estimated the fair value less costs to sell of the disposal group
to be P350,000. Six months later, the assets were disposed of for P380,000
cash and company incurred P30,000 selling cost.
REQUIRED:
REQUIRED:
(a) Give the entries on March 31, 2016 and December 31, 2016 as a result
of the foregoing.
(b) Assume instead that the fair value less cost to sell on December 31,
2016 decreased to P35,000. Give the entry on December 31, 2016.
MULTIPLE CHOICE
MC2 Which of the following should form part of the cost of investment property?
MC3 After initial recognition, investment property held by an entity shall be valued
using either the cost model or the
a. cost.
b. cost less accumulated depreciated and impairment loss.
c. cost less accumulated depreciation.
d. current cost.
MC5 Which of the following are valid statement regarding measurement of
investment property?
I. The best evidence of fair value is current price in an active market for
similar property in the same location and condition.
II. When items of investment property are measured at fair values, any
movement in fair value is credited to other comprehensive income
under the heading revaluation surplus.
III. An entity shall continue to measure an investment property at fair
value until its disposal if it has previously valued the property at fair
value.
IV. Transaction cost directly attributable to acquisition of investment
property are capitalized as part of the cost the asset.
MC6 When an item of asset is transferred to and from the classification investment
property, carried using the cost model, the measurement basis at the date of
transfer is the
a. original cost
b. fair value
c. carrying amount
d. recoverable amount
a. ignored
b. recognized as a gain profit or loss
c. credited to asset revaluation surplus
d. recorded as a credit to a liability account
I. Cash
II. Receivables
III. Investment in debt securities
IV. Prepaid expenses
a. I, II, III and IV
b. I and II only
c. II and III only
d. I, II and III
MC10 When the company pays insurance premium on a life insurance policy of an
officer and the officer or his heirs are the designated beneficiary, any cash
surrender value is
a. ignored
b. credited to life insurance expense
c. recorded as an income
d. shown as part of non-current asset on the statement of financial
position
MC11 If the company is the owner and designated beneficiary of a life insurance
policy covering the company’s officer, any increase in cash surrender value is
a. ignored
b. credited to life insurance expense
c. recorded as an income
d. charged to life insurance expense
MC13 Long-term advances and deposit are measured on the statement of financial
position date at
a. amortized cost using the effective interest method
b. amortized cost using the straight0-line method
c. fair value
d. realizable value
a. cost
b. carrying amount
c. lower of cost and carrying amount
d. lower of carrying amount and fair value less cost to sell
MC16 An item of property, plant and equipment qualifies to be reported as “Held for
sale”. Its fair value less cost to sell exceeds its carrying amount at the date its
reclassified as Held for Sale. For accounting purposes, such an excess shall
MC17 A non-current asset classified as “held for sale” must be presented on the
financial statements
MC18 Which of the following is a valid statement regarding “assets held for sale”?
a. Depreciation ceases while the asset are being held for sale
b. No further loss is taken up on the decline in the fair value of the asset
from the date it is classified as held for sale until the date of actual
disposal
c. No maintenance costs shall be reported in profit or loss during the
period in which the asset is held for sale
d. Assets intended for sale within a period of twelve months from the
statement of financial position date are classified as current assets
MC19 Mega Company and its subsidiaries have a provided you with a list of property
items they own:
a. P20 million
b. P30 million
c. P85 million
d. P90 million
MC20 Shoshin, Inc. owns land and building in Manila used for operations and
administration. The company uses the cost model and provides you with the
following information on January 1, 2016:
How much gain shall be reported in profit or loss resulting from this
reclassification from owner-occupied property to investment property?
a. P0
b. P5 million
c. P8 million
d. P13 million
MC21 Sachi Company had a property with a carrying amount of P15,000,000 held for
sale in the ordinary course of business. On August 1, 2016, Sachi commenced
an operating lease with Sanjo Company; hence, the property was reclassified
from inventory to investment property.
The fair value of this property on August 1, 2016 was P20,000,000 with cost to
sell estimated at P1,000,000.
If the investment property will be carried at fair value, what is the amount of
revaluation to be recognized inn profit or loss in Sachi’s 2016 statement of
comprehensive income as a result of this reclassification?
a. P0
b. P1,000,000
c. P4,000,000
d. 5,000,0000
MC22 The Emem Company acquired a building on January 1, 2016 for P18,000,000.
At that date, the building had a useful life of 40 years. The fair value of the
building was P20,000,000 at December 31, 2016. The building was
appropriately classified as investment property and accounted for using the
cost model.
a. P20,000,000 and P0
b. P18,000,000 and P0
c. P20,000,000 and gain of P2,000,000
d. P17,550,000 and expense of P450,000
MC23 The Beyonce Company acquired a building on January 1, 2016 for
P18,000,000. At that date, the building had a useful life of 40 years. The fair
value of the building was P20,000,000 at December 31, 2016. The building was
appropriately classified as investment property and accounted for using the
fair value model.
a. P20,000,000 and P0
b. P18,000,000 and P0
c. P20,000,000 gain of P2,000,000
d. P17,550,000 and expense of P450,000
MC24 The balance of the cash surrender value of life insurance policy maintained on
the life of the president increased from P80,000 to P115,000 during the year.
The company pays an annual insurance premium of P110,000 on this policy.
Assume that the company has the sole right to cancel this policy, life
insurance expense for the year is
a. P75,000
b. P80,000
c. P110,000
d. P145,000
MC25 On June 30, 2016, the XYZ Corporation granted a two-year, non-interest
bearing P200,000 advance to its treasurer. Prevailing interest rate is 12%.
a. P2,000,000
b. P1,594,400
c. P1,690,000
d. P1,785,728
a. P120,000
b. P140,000
c. P160,000
d. P200,000
How much should JJ Company report as life insurance expense for 2016?
a. P40,000
b. P34,000
c. P19,000
d. P13,000
What amount should XX Company report in its December 31, 2016 statement
of financial position related to its non-current investment for bond sinking
fund?
a. P2,925,000
b. P2,900,000
c. P2,875,000
d. P2,700,000
How much annual deposit should WY Company make for four years in order
to accumulate the desired amount on July 1, 2020?
(Rounded)
a. P1,250,000
b. P1,077,500
c. P978,500
d. P730,000
MC30 A building owned and previously occupied by the company was vacated and
was being negotiated for sale. The sale is highly probable and is expected to
be consummated within 6 months. The building had a cost of P20,000,000 and
accumulated depreciation of P12,000,000. The fair value of the building is
P9,000,000. The company expects to incur selling costs of P1,500,000 on the
disposal of this building.
a. P20,000,000
b. P9,000,000
c. P8,000,000
d. P7,500,000
MC31 Use the same information given in MC30. Assume that the building was sold
after the end of the reporting period at P9,200,000, after incurring disposal
cost of P1,300,000.
How is the profit (before income tax) during the year of sale affected?
a. no effect
b. decrease of P100,000
c. increase of P200,000
d. increase of P400,000
MC32 On June 30, 2016, L Company classified a non-current asset as “Held for Sale”.
On this date, before its reclassification, its carrying amount was P5,000,000
and its expected selling price was P4,500,000, with expected cost to sell of
P300,000.
By December 31, 2016, the asset had not yet been sold, but the management
is still committed to plan sell it, and sale the is considered to be highly
probable. The entity estimated that because of recent changes for the
demand of the product that is produced by the asset and expected favorable
price movement, the asset was now expected to be selling at P5,500,000 with
related cost to sell unchanged. Depreciation from July 1 to December 31
would have been P500,000.
a. P0
b. P700,000
c. P800,000
d. P1,000,000