IP and PPE

Eastern Visayas State University
College of Business and Entrepreneurship

Accountancy Department
Tacloban City
INVESTMENT PROPERTY AND PPE PFRS 16,40
Part 1
True or False. Write True if the statement is correct. Otherwise, write False.
1. Neither land nor building qualifies as investment property.
2. In Fair value model, the changes in fair value from year to year are derecognized in
profit or loss.
3. Owner-occupied property is a property held by an owner for use in the production or
supply of goods or services, or for administrative purposes.
4. An amount which the insurance firm will pay upon the surrender and cancellation of the
life insurance policy is called Life Insurance Premium.
5. Land held for currently determined use is an example of an Investment property.
6. An Investment Property is held for sale in the ordinary course of business.
7. Investment property shall be recognized as an asset when and only when it is probable
that the future economic benefits that are associated with the investment property will
flow to the entity and when the cost of the investment property can be measured
unreliably.
8. Owner-occupied property awaiting disposal is unconsidered investment property.
9. Building owned by the reporting entity leased out under finance lease is considered
Investment Property.
10. An Investment Property shall be initially measured at its cost excluding Transaction costs.
Identification.
1. It means that the cost of the PPE together with the related accumulated depreciation
shall be removed from the accounts.
2. It provides that contributions received from shareholders shall be recorded at the Fair
Value with the credit going to donated capital.
3. These are tangible assets that are held for use in production or supply of goods or
services, for rental to others, or for administrative purposes, and are expected to be used
during more than one period.
4. It is used in amortizing the discount on note payable as interest expense.
5. It is defined as the event or transaction causing the cash flows of the entity to change
significantly by reason of the exchange.
Modified True or False. Write True if the statement is correct. Otherwise, write the word/words, to make
the statement correct.
1. The cost of the asset acquired on account simply includes the cash paid plus directly
attributable costs such as freight, installation cost and other cost necessary in bringing
the asset to the location and condition for the intended use.
2. The cost of an item of PPE acquired in exchange for nonmonetary asset or a
combination of monetary and nonmonetary asset is measured at fair value.
3. Capital gifts or grants shall be recorded at cost when received or receivable.
4. PAS 5, paragraph 13, provides that an entity shall not classify as held for sale a
noncurrent asset that is to be abandoned.
5. Entities are encouraged to disclose the carrying amount of PPE retired from active use
and classified as held for sale.
This material is adapted. All rights belong to the author.

Tacloban City
Part 2:
Problem 1
Uy Company and its subsidiaries own the following properties at year-end:
Land held by Eragon for undetermined use P 5,000,000

A machinery owned by Eragon and is leased out under an operating lease 3,000,000
Property held by a subsidiary of Eragon, a real estate firm, in the ordinary
course of business 2,000,000
Property held by Eragon for use in production 4,000,000
Building owned by a subsidiary of Eragon and for which the subsidiary
provides security and maintenance services to the lessees 1,500,000
Land leased by Eragon to a subsidiary under an operating lease. 2,500,000
Property under construction for use as investment property 6,000,000
Land held for future factory site 3,500,000
Building leased out by Eragon to an unrelated party under an operating 1,000,000
lease
Required:
a) What is the total investment property that should be reported in the consolidated statement of
financial position of the parent and its subsidiaries? 1pt
b) What total amount should be considered as owner-occupied property and included in
property, plant and equipment in the consolidated statement of financial position? 1pt
Problem 2
Asa Friends Company purchased an investment property on January 1, 2019 for P2,200,000. At that
date, the property had a useful life of 40 years.
On December 31, 2020, the property had a fair value of P2,700,000, and on December 31, 2021,
the fair value of the property rose to P3,000,000.
On December 31, 2021, the property was sold for net proceeds of P2,900,000. The entity used the
cost model to account for the investment property.
Required:
a) What is the carrying amount of the investment property on December 31, 2021? 1pt
b) What amount should be recognized as gain from change in fair value in 2021? 1pt
c) What is the gain or loss to be recognized for the year ended December 31, 2021 regarding
the disposal of the property? 1pt
Problem 3
BackEats Company ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure.
The board of directors decided that instead of selling the condominium, the entity would hold this
property for purposes of earning rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the property was placed in service on
January 1, 2021.
The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and the
residual value is P5,000,000.
The accounting policy used for the investment property was the fair value model.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2021 55,000,000
December 31, 2022 53,000,000
December 31, 2023 60,000,000

Tacloban City
Required:
a) What amount should be reported as depreciation of investment property for 2021?
b) Prepare the journal entries for 2021, 2022, 2023.
Problem 4
Pacioli Company made the following acquisitions during the year:
• Acquired for P 5, 400,000, including appraiser fee of P 50,000, a warehouse building and the
land on which it is located.
The land had an appraised value of P 2,000,000 and original cost of P 1,400,000. The building
had an appraised value of P 3,000,000 and original cost of P 2,800,000.
• Acquired an office building and the land on which it is located for P 7,500,000 cash and
assumed an existing P 2,500,000 mortgage. For realty tax purposes, the property is assessed at
P 9,600,000, 60% of which is allocated to the building.
Required:
a) What amount should be reported as total cost of land? 2pts
b) What amount should be reported as total cost of building? 2 pts
Problem 5
QUIZINI CORP. has been experiencing a significant increase in customers' demand for its product. To
expand its production capacity, Quizini decided to purchase equipment from ATO La Company on
January 2, 2021. Quizini issues a P 2,400,000 5-year, noninterest-bearing note to ATO La for the new
equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company
will pay off the note in five P 480,000 installments due at the end of each year over the life of the note.
Quizini’s financial year-end is December 31. The appropriate present value factor of an ordinary annuity
of 1 at 12% for 5 periods is 3.60478.
Required:
a) What is the cost of the new equipment? 1pt
b) What amount of interest expense should be reported in Quizini’s income statement for the year
ended December 31, 2022? 1pt
c) What are the entries to record the payment and interest for 2022? 2pts
d) What is the carrying value of the note at December 31, 2023? 1pt
Problem 6
Jeremiah Company traded in an old machine having a carrying amount of P 4,000,000 and paid a
cash difference of P 800,000 for a new machine having a cash price of P 4,500,000.
Required:
a) What amount of gain/loss should be recognized on the exchange? 1pt

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Eastern Visayas State University

College of Business and Entrepreneurship

INVESTMENT PROPERTY AND PPE PFRS 16,40

This material is adapted. All rights belong to the author.

Land held by Eragon for undetermined use P 5,000,000

This material is adapted. All rights belong to the author.

This material is adapted. All rights belong to the author.

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