Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

CHAPTER 8
INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS
AND NONCURRENT ASSETS HELD FOR SALE
Discussion Question No. 12
(a), (b), (c), (e), (g), (o), (r) with option to or not to report as investment property
(d)
(f)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(p)
(q)

not shown in the financial statements (with Finance Lease Receivable)

Property, Plant and Equipment
Property, Plant and Equipment, until consummation of lease
Inventories
Inventories
Construction in Progress (Inventories)
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
not shown, unless leased under finance lease (PPE)
PROBLEMS

8-1.

(Sebastian Corporation)
a.

b.

8-2.

Purchase price
Commission to real estate agent
Costs of clearing the land (net of timber and gravel recovered
amounting to P65,000)
Total cost
.

P 8,600,000
430,000

Down payment
Market value of shares issued (20,000 x 240)
Present value of non-interest bearing note issued
(2,000,000 x 2.4869)
Total cost of land and building
Cost allocated to land (30% x 13,773,800)
Cost allocated to building (70% x 13,773,800)

P 4,000,000
4,800,000
4,973,800
P13,773,800
P 4,132,140
P 9,641,660

(Precious Realty Corporation)

1/2/16

12/31/16
8-3.

70,000
P 9,100,000

Buildings
Accumulated Depreciation Building Held as
Investment Property
Buildings Held as Investment Property
Accumulated Depreciation - Buildings
Depreciation Expense Buildings
Accumulated Depreciation - Buildings

8,200,000
4,200,000
8,200,000
4,200,000
200,000
200,000

(Absolute Corporation)
Cost Model
(a)
Investment Property at December 31, 2016
Land
Building
Cost
Accumulated Depreciation
20,000,000/40 x 3
Total Investment Property

87

P 5,000,000
P20,000,000
1,500,000

18,500,000
P23,500,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

(b)

Amounts and Accounts Taken to Profit or Loss

Rent Revenue
Depreciation Expense
Administrative and Security Salaries
Property Taxes
Maintenance
Profit

P 3,000,000
(500,000)
(200,000)
(120,000)
(340,000)
P 1,960,000

Fair Value Model

(a)
Investment Property at December 31, 2016
Land
Building
Total Investment Property
(b)

8-4.

Amounts and Accounts Taken to Profit or Loss

Rent Revenue
Change in Fair Value of Investment Property
Land
Building
Depreciation Expense
Administrative and Security Salaries
Property Taxes
Maintenance
Profit

P3,000,000
800,000
1,000,000
(500,000)
(200,000)
(120,000)
(340,000)
P3,760,000

(Adam Company)
(a)

(b)

Cost Model
Land Held as Investment Property
Building Held as Investment Property
Accum. Depr. Building
Land
Building
Accumulated Depreciation Bldg Held
as Investment Property
Fair Value Model
Land Held as Investment Property
Land
Revaluation Surplus
Building Held as Investment Property
Accum. Depreciation-Building
Building
Accum. Depr. Building Held as
Investment Property
Revaluation Surplus
35M/50M = 70%; 42M/70% = 60M
60M 42M = 18M; 42M 35M = 7M

8-5.

P 6,800,000
20,000,000
P26,800,000

(Raymond Company)
1.

Building Construction Fund Cash

Cash

2.

Building Expansion Fund Securities

Building Expansion Fund Cash

88

20.0M
50.0M
15.0M
20.0M
50.0M
15.0M
28.0M
20.0M
8.0M
60.0M
15.0M
50.0M
18.0M
7.0M

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

3.

Building Expansion Fund Securities

Interest Receivable Building Expansion Fund
Building Expansion Fund Cash

4.

Building Expansion Fund Cash

Dividend Income

5.

Building Expansion Fund Expenses

Building Expansion Fund Cash

6.

Building Expansion Fund Cash

Interest Receivable Building Expansion Fund
Interest Income

7.

Building Expansion Fund Securities

Building Expansion Fund Cash

8.

Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities
Interest Income

9.

Building Expansion Fund Cash

Dividend Income

10.

Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11.

Buildings
Building Expansion Fund Cash

12.

Cash
Building Expansion Fund Cash

8-6.

(Cordero Corporation)
(a)

Required semiannual deposit

= P15,000,000/ FV of annuity of 1 discounted at 4% for 20 periods
= P15,000,000 / 29.7781 = P503,726

(b)

1/2/16
Bond Sinking Fund Cash
Cash

503,726
503,726

6/30/16
Bond Sinking Fund Cash
Cash
Interest Income (503,726 x 4%)
12/31/16
Bond Sinking Fund Cash
Cash
Interest Income
4% ( 503,726 + 523,875) = 41,104
8-7.

523,875
503,726
20,149
544,830
503,726
41,104

(Dorina Company)
(a)
Entries for 2013 through 2017
7/01/13 Prepaid Life Insurance
Cash

120,000
120,000

89

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

12/31/13 Life Insurance Expense (120,000 X 6/12)

Prepaid Life Insurance

60,000
60,000

06/30/14 Prepaid Life Insurance

Cash

120,000

12/31/14 Life Insurance Expense

Prepaid Life Insurance

120,000

06/30/15 Prepaid Life Insurance

Cash

120,000

12/31/15 Life Insurance Expense

Prepaid Life Insurance

120,000

06/30/16 Prepaid Life Insurance

Cash

120,000

12/31/16 Life Insurance Expense

Prepaid Life Insurance

120,000

120,000
120,000
120,000
120,000
120,000
120,000

12/31/16 Cash Surrender Value*

Life Insurance Expense

36,000
36,000

06/30/17 Prepaid Life Insurance

Cash

120,000

12/31/17 Life Insurance Expense

Prepaid Life Insurance

120,000

120,000
120,000

Cash Surrender Value

Life Insurance Expense

13,000
13,000

03/31/18 Life Insurance Expense

Prepaid Life Insurance

30,000
30,000

Receivable from Insurance Company

Prepaid Life Insurance
Cash Surrender Value
Gain on Insurance Settlement

4,000,000
30,000
49,000
3,921,000

*The cash surrender value of life insurance may be recognized on the anniversary date
(June 30, 2016 and every June 30 thereafter). No proportionate adjustment, however, is
necessary at year end because there is no actual increase in cash surrender between
anniversary dates.
(b) If the president or his heirs were the beneficiaries of the policy, the premiums paid shall
be charged to employees benefit expense and no cash surrender value will be set up by
the company.
8-8.

(Solidbank)
(a)

P10,000,000 x 0.3220 = P3,220,000

(b)

Interest Income in 2016 = 12% x P3,220,000 = P386,400

(c)

1/1/16

Advances to Officers
Prepaid Compensation Expense
Cash

90

3,220,000
6,780,000
10,000,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

12/31/16 Advances to Officers

Interest Revenue

8-9.

678,000

12/31/17 Advances to Officers

Interest Revenue
(3,220,000 + 386,400) x 12%

432,768

(b)

432,768

678,000
678,000

Amortized Cost, December 31, 2017 = 3220,000 + 386,400 + 432,768 = 4,039,168

12/31/16 Machinery Group Held For Sale

Accumulated Depreciation Machinery
Impairment Loss Machinery
Machinery
Machinery Tools
Machinery Parts

1,400,000
1,200,000
200,000

07/17/17 Cash (1,520,000 60,000)

Machinery Group Held For Sale
Gain on Sale of Machinery

1,460,000

2,200,000
380,000
220,000
1,400,000
60,000

(Invecargill Ltd.)
(a)

(b)

(c)
8-11.

678,000

(Patriarch, Inc.)
(a)

8-10.

386,400

Compensation Expense
Prepaid Compensation Expense
6,780,000/10

Compensation Expense
Prepaid Compensation Expense
(d)

386,400

08/01/16 Impairment Loss Equipment

Loss from Decline in NRV of Inventory
Accumulated Depr- Equipment
Inventory
Assets Held for Sale
Accumulated Depreciation
Impairment Loss
Plant
Equipment
Inventory
Goodwill
02/01/17 Cash (380,000 30,000)
Assets Held For Sale

15,000
5,000
15,000
5,000
350,000
95,000
30,000
220,000
160,000
75,000
20,000
350,000
350,000

Cost = 42,000 (3/5) = 70,000 Accumulated Depreciation = 70,000 42,000 = 28,000

(a)

Mar. 31 Depreciation Expense (14,000 x 3/12)

Accumulated Depreciation
Asset Held for Sale
Impairment Loss
Accumulated Depreciation
Equipment

91

3,500
3,500
36,000
2,500
31,500
70,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

(b)

Dec. 31 Asset Held for Sale

Recovery of Previous Impairment

2,500

Dec. 31 Impairment Loss

Asset Held for Sale

1,000

2,500
1,000

MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5

C
C
A
B
B

MC6
MC7
MC8
MC9
MC10

C
C
D
B
A

MC11
MC12
MC13
MC14
MC15

B
B
A
D
B

MC16
MC17
MC18

A
B
A

Problems
MC19

Land for undetermined future use

Vacant building to be leased out under operating lease
Total investment property in the consolidated statement

MC20

Transfer is from owner-occupied property; excess of fair value

over carrying amount (28M-20M and 35M-30M) is credited to
revaluation surplus.

P10 million
20 million
P30 million

P0

MC21

Fair value at time of transfer 20,000,000 15,000,000

Carrying value
Amount taken to profit or loss

MC22

Carrying value (18,000,000 x 39/40)

Depreciation expense (18,000,000/40 years)

P17,550,000
P 450,000

MC23

Fair value FV
Gain (20,000,000 18,000,000)

P20,000,000
P 2,000,000

MC24

Annual insurance premium

Increase in cash surrender value (115,000 80,000)
Life insurance expense for the year

MC25

Carrying amount of the note on June 30, 2015

(2,000,000 x 0.7972)
Amortization of discount for six months (1,594,400 x 12% x 6/12)
Carrying amount of the note on December 31, 2015

MC26

Cash surrender value, January 1

Increase in cash surrender value (200,000 160,000)
Cash surrender value, December 31

MC27

Net annual premium (40,000 6,000)

Increase in cash surrender value (108,000 87,000)
Life insurance expense

MC28

Bond sinking fund, January 1

Additional investment to the fund
Dividend revenue on equity securities investments
Interest revenue on debt securities investments
Administration costs
Bond sinking fund, December 31

92

P20 million
15 million
P 5 million

P110,000
35,000
P75,000
P1,594,400
95,664
P1,690,064
P100,000
40,000
P200,000
P34,000
21,000
P13,000
P2,250,000
450,000
75,000
150,000
(25,000)
P2,900,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets

MC29

Desired accumulated fund 5,000,000/ 5.11 = 978,500

Future amount of annuity in advance at 10% for 4 periods
Annual deposit

MC30

Asset is measured at the lower of carrying value and fair value

less cost to sell (9.0M 1.5M = 7.5M) or 8.0M

P5,000,000
5.11
P978,500
P7,500,000

MC31

Selling price less cost to sell (9,200,000 1,300,000)

Carrying amount (lower)
Profit (increase)

P7,900,000
7,500,000
P 400,000

MC32

Fair value less cost to sell, December 31 (5,500,000 300,000)

Fair value less cost to sell, June 30 (4,500,000 300,000)
Increase in fair value less cost to sell
Amount of gain, however, is limited to the previous loss
recognized on June 30 (5,000,000 4,200,000)

P5,200,000
4,200,000
P1,000,000

93

P 800,000