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PRTC - Investment Property

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Cyrus Atayde Atienza
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431 views

PRTC - Investment Property

Uploaded by

Cyrus Atayde Atienza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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\ Excel Professional Services, Inc. Management Firm of Professional Review and Training Center (PRTC) ee anil 7339344 * Santiago Cty, cabela(0218)2807130 * Angeles City Pampanga(0B47)540. wt “ Celamba City, Laguna * Dasmanfas Cty, Cavite * Lipa City, Batangas 10917) 8852769 (VISAYAS) Bacolod City (034) 4346214 * Cebu City (032) 2537900 loc. 218 (YARN RES Sto Be Oro tity (0995) 0570499 *’Davan City (082) 2250049 CPA REVIEW Soe ee ee a ene DISCUSSION PROBLEMS since 1977 FAR | FAR.2608-Investment Property 1. Investment properties are b. If the services provides are elatively insignificant 2. Identifable non-monetary assets without physical Component of the afrangement as 2 whole (for substance instance, the building owner supplies securty and b. Properties hel to eam rentals or for capital maintenance services to the lessees), then the appreciation ar both nity, may. treat the property as” investment c. Aesets held for seie in the ordinary course of property business c. Where the services provided are more significant 4. Tangible items that are held for use in the {guch af In the case of an owner-managed hotel), production oF supply of goods or services, for the property should be classified as investment Fental to others, or for administrative purposes; property. fr a wey tre expected to be used during more than one —— investment property? | Building held for sale in the ordinary course of business, II. Building held to earn rentals under operatiag leases. HI. Land held for capital appreciation. IV. Land held for undetermined future use ¥. Equipment held to earn rentais under operating leases. 1, 1, TH IV and V Tt, TH, 1Vand V if, 1V and V U1, and 1V classified 25 5. Which of the following is not an investment property? a. A property held to earn rentals aid an insignificant portion is held for adrinistratiwe purposes. An office building held to earn rentals where the owner provides security and maintenance services to the lessees who occupy the duilding. ‘An owner-managed hotel ‘A property leased to and occupied by 2 subsidiary in the lessor's separate financial statements. The Buckethead Company has a single investmen property which had originally “st 580,000 on January 2015. At 31 December Joi: its fair value was 600,000 and at 31 December 2018 1t haa ~ fair vaiue rt 590,000. On acquisition, the property hau 2 usefu! fie of 40 years. What should be the expense recognized in Buckethead's profit or loss for the year ending 31 December 2018 Under each of the fair value model and the cost model? Fax, yalue model Costmodet a Pi4,750 14,500 b. 10,000 14/500 © £24,500 10,060 8, 13'000 P14, 750 7. Vhe Niagara Company owns three properties which are classified as investment properties according to PAS4O Investment property. Details of the propetties are givan below (amouints in thousands) InitiatFairvalue at Fain value at cost 31 Dec2017 3, Dec 2018 Property (1) 270 320 350 Property (2) 345 305, 235 Property (3) 330 3e5 360 Each property was acquired in 2014 with a useful life of 50 years. The company's accounting polidy 15 to use the forr value model for investment properties. What 15 the gain or loss to be recognized in Niagara's prafit or loss for the year ending 31 Deceriber 20187 2. P18,900 less, 230,000 gain b. 935,000 less d. P45,000 toss 1¢ the following information far the next two questions. Aglipay, Inc. completed the construction of a shopping matt at the and of 2016 for a total cost of P100 million. The ‘crall has an estimated economic ife of 25 years. The mail was construcses for the purpose of earning rentals by ng out space in the shopping mall to tenants. company spted to use the fair value model to measure the happing mall. An independent valuation expert was used by the company to fair velue the shopping mali on an basis. According to the fair valuation expert the fair values of the shopping mali at the end of 2017 and 18 were P20 million and P11S million, respectively. How much should be recognized in profit or loss in 2018 as a result of the fair value changes? 3. P23,000,009 <.PS,000,000 b. P13,000,600 a. P ° How much Is the carrying amount of the shopping malt on December 31, 2018 if Aglipay used the cost model? a. £169,000,000 . P96,000,000 b. P118,000.000 dé. 92,000,000 b's The following will most likely result to reclassification, except 5. Commencement of owner-occupation, b. End of owner-occupation. © Commencement of an cperating lease to another warty. 6. Redevelopment of an existing investment property. Han, Inc, owns 2 building purchased on January 1, 2014 for P1UO million. The building was used as the company’s head office. The building has an estimated useful Ife of 25 years. In 2018, the company transferred its head cffice and decided to lease out the old ullding. Tenants began occupying the old building by the end of 2018. On December 31, 2018, the company reclassified the bullding as’ investment property to be carried a° fair value, The fair value on the date of reclassification was P70 million. How much should be recognized in the 2018 profit or loss as a ‘Page 4 of 6 result of the transfer from owner-occupied to investment property? 2, P14,000,006 ¢. P10,000,000 b. P 4,906,000 ae ° - done - FAR.2608 : e EXCEL PROFESSIONAL SERVICES, INC. LECTURE NOTES SUMMARY OF PAS 40 INVESTMENT PROPERTY Objective The objective of this Standard is to prescribe the accounting treatment for investment property and related disclosure requirements. Scope ‘This Standard shall" be applied in the recognition, measurement and disclosure of investment property, ‘This Standard does not apply to. «biological assets related to agricultural activity (see PAS 41) © mineral rights and mineral reserves such as oil natural gas and similar non-regenerative resources ‘+ matters covered in PAS 17, including: © classification of leases as finance leases or ‘operating (eases © recognition of lease income from investment property (see also PAS 18 ) © measurement in a lessee’s financial statements of property interests held Clunder a lease accounted for as‘an operating lease © measurement in 2 lessor’s financial statemients of its net investment in a finance lease © accounting far sale and leaseback transactions & disclosure about finance leases and operating leases. Classification Issues Property held under an operating lease 'A property interest that is Nel by a lessee under an operating lease may be classified and accounted for as investment property provided that ‘s the rest of the definition of investment property is met; © the operatin: finance lease in accordance with PAS 17 Leases; and 5 + the lessee uses the fair value model set out in this Standard for the asset recognized. |An entity may make the foregoing classification on property-by-property basis. Partial own use If the owner uses part of the property for its own use, ‘and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separetely, they are accounted for separately. Therefore the part that is Fented out is investment property. If the portions cannot be. sold or leased out separately, the property is investment property only If the owner-occupied portion is insignificant. Ancillary services If the enterprise provides ancillary services to the occupants of 2 property held by the enterprise, the Sppropriateness of classification a5 investment property ie determined by the significance of the services provided. If those services are a relatively insignificant Eomponent of the arrangement 2s a whole (for instance, the bullding owner supplies security and maintenance services to the lessees), then the enterprise may treat the property as investment property. Where the services provided bre more significant (such as in the case of an Page 5 of 6 lease is accounted for as ifit were a - ‘www.prtc.com.ph owner-managed hotel), the property should be classified as owner-occupied. Intracompany rentals Property rented to a parent, subsidiary, or fellow subsidiary is not investment property in consolidated financial statements that include both the lessor and the lessee, because the property 1s owner-occupied from the perspective of the group. However, such property could Qualify as investment property in the separate financial Statements of the lessor, if the definition of investment property is otherwise met. Recognition Investment préperty should be recognized as an asset when it is probable that the future economic benefits that are associated with the property will flow to the enterprise, and the cost of the property can be reliably measured Initial measurement Investment property is initially measured at cost, including transaction costs (e.g. professional fees for \egal services and property transfer taxes). Such cost should not include start-up costs, ebnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy. Cost is the amount of cast) or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of Its acquisition or construction or, nhere applicable, the amount attributed to that asset when initially recognized in accordance with the specific Fequirements of other PFRS, eg PFRS 2 Share-based Payment. Measurement subsequent to initial recognition Fair value model «Investment property is remeasured at fair value. Gains or losses arising from changes in the fair value Of investment property must be included in net profit or loss for the period in which it arises. © There is a rebuttable presumption that the enterprise will be able to determine the fair value of ‘an investment property reliably on a continuing basis. However, if, in exceptional circumstances, an entity follows the fair value modei but at acquisition concludes that a property's fair value is not expected to be reliably measurable on a continuing basis, the | property is accounted for in accordance with the benchmark treatment under PAS 16, Property, Plant and Equipment (cost less accumulated depreciation less accumulated impairment losses) | Where a property has previously been measured at fair value, it should continue to be measured at fair value until disposal, even if comparable market transactions become less frequent or market prices become less readily available. Cost Mode! After initial recognition, investment property is ‘accounted for in accordance with the cost model as set out in PAS 16, Property, Plant and Equipment ~ cost less accumulated depreciation and less accumulated impairment losses, FAR.2608 La e e ‘ EXCEL PROFESSIONAL SERVICES, INC. Transfers to or from Investment Property ‘+ if classification is difficult, the eriteria to distinguich ” Ciassification investment property from owner-occupied property ‘and from property held for sale + tne methods and significarit assumptions applied in determining the fair value of Investment property = the extent to whi Ivansfers to, or from, investment proparty should only be made when there is a change in use, evidenced by * commencement of owner-eccupation (transfer cu " nthe Tair value of investment Pan eneeatment’ property on owner-occupied ‘ property) Cael brogerty is based on a valuation by a qualified » Foramerzement of development vith + view to Independent value; if there hak been no. such sale (transfer -from investment property to: ahaa Sere rental inconie from investment propeny + end of owner-occupation (transfer from owner= eee rsranas | direct operating expenses (including repairs jeceunied Pee eyecare and maintenance) arising from. tavestment «commencement of an operating lease to another property that generates rental income during party (transfer from inventories to investment arate rental inc 7 the period property); or direct operating expenses (including repairs ‘and maintenance) arising from investment Property that did not generate rental income Guring the perio the cumulative change in fair value recognised in profit or loss on 2 sale from a poo! af assets In which the cust mode is used into a poo! in which the fair value model is used + restrictions on the realisability of investment property or the remittance of income and proceeds. of aisposat ‘© contractual obligations to purchase, construct, oF develop investment property or for repairs, maintenance of enhancements when an entity decides to sell en investment property without development, the property is not reclassified as investment property but is dealt with as investment property until it is disposed of. ‘The following rules apply for accounting for transfers between categories + for a transfer from investment property cartieg at fair value to owner-occupied property or inventories, the fair value at the change of use is the ‘cost’ of the property under its nevr classification; © for a transfer from owneroctupied property investment property carried at fair value, PAS 1 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 vaiue is dealt with as a revaluation under PAS 10; and + for a transfer from inventories ty investment property at fair value, any difference between the fair value at the date of transfer and it previous carrying amount should be recognized in ret profit Additional Disciesures for the Fair Value Model +a raconciiation between the carrying amounts of te property at the beginning and end of the period, showing additions, disposals, fair -alue adjustments, net foreign’ exchange differences, transfers a and from inventories and owner: occupied property, and other changes + significant adjustments to an outside valuation (iF any) «if an entity that otherwise uses the fair value model measures an item of investment property using the cost model, certain additional disclosures are required When an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and they do mot change the cost of the property for ‘measurement or disclosure purposes, ‘Adlationat Disciosur ss for the Cost Madet Disposal the depreciation methods used the useful lives or the depreciation rates used + the gross carrying amount and the accumulated depreciation (aggregated with accurnulated impairment losses) at the beginning and end of the period #2 reconciliation of the carrying amount of investment property at the beginning and end of the period showing , additions, disposals, depreciation, impairment recognised or reversed, foreign exchange differences, transfers to and from Inventaries and owner-occupied property, and other ‘An investment property should be derecognized disposal or when the investment property is, permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal should be calculated as the difference between the net disposat proceeds and the carrying amount of the asset and should be recognized as income or expense in the income statement. Compensation from third parties 1 recognized when it becomes receivable. Disclosure Both Fair Value Model and Cost Mode! © whether the fair value or the cost model is used «if the fair value model is used, whether property Interests held under operating leases are classified and accounted for as investment property Page 6 of 6 Des www. prtc.com.ph changes. + the fair value of investment property. If the fair value of an item of investment property caurict be measured reliably, additional disclosures are required, includifia, if possible, the range ot estimates within which fair vatue is highly likely to lie + end of FAR.2608 - © FAR.2608

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