A5 - Investment Property and Cash Surrender Value Solution PDF

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A5 Investment Property and Cash Surrender Value Problem 1 Astronomy Company purchased an investment property on January 1, 2018 at a cost of The property had a useful life of 20 years and on December 31, 2019 had a fair value of On December 31, 2019 the property was sold for net proceeds of The enti...

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A5 – Investment Property and Cash Surrender Value

Problem 1 Astronomy Company purchased an investment property on January 1, 2018 at a cost of P4,000,000. The property had a useful life of 20 years and on December 31, 2019 had a fair value of P4,800,000. On December 31, 2019 the property was sold for net proceeds of P4,500,000. The entity used the cost model to account for the investment property. What is the gain to be recognized for 2019 regarding the disposal of the investment property? Answer: P900,000 Solution:

Problem 2 Big Hit Company owned three investment properties with the following details: Initial Cost Property 1 Property 2 Property 3

P2,700,000 3,450,000 3,300,000

Fair Value Dec. 31, 2019 P3,200,000 3,000,000 3,900,000

Fair Value Dec. 31, 2020 P4,000,000 2,100,000 3,600,000

Each property was acquired in 2019 with a useful life of 10 years. The accounting policy is to use the fair value model for investment property. What is the gain or loss to be recognized for 2020 for each Property? Property 1:

P_

Property 2:

P_

Property 3:

P_

Answers: Property 1:

P800,000

Property 2:

P(900,000)

Property 3:

P(300,000)

Solution:

Problem 3 Solo Company acquired a building on January 1, 2019 for P9,000,000. At that date the building had a useful life of 30 years. On December 31, 2019 the fair value of the building was P9,600,000 and on December 31, 2020, the fair value is P9,800,000. The building was classified as an investment property and accounted for under the cost model. QUESTIONS: 1. What is the Carrying Amount of the Investment Property as of December 31, 2020? 2. What is the amount of the depreciation expense for 2020? Answers: 1. P8,400,000 2. P300,000 Solution:

Problem 4 Lovesick Company has a single investment property which had an original cost of P5,800,000 on January 1, 2017. On December 31, 2019 the fair value was P6,000,000 and on December 31, 2020, the fair value was P5,900,000. On acquisition, the property had a useful life of 40 years. QUESTIONS: 1. What is the expense or loss recognized in profit or loss for 2020 under the fair value model? 2. What is the expense recognized in profit or loss for 2020 under the cost model? Answer: 1. P100,000 2. P145,000 Solution:

Problem 5 Stream Company’s accounting policy with respect to investment property is fair value model at the end of each reporting period. One investment property had a fair value of P8,000,000 on December 31, 2019. The property had been acquired on January 1, 2019 for a total of P7,600,000, made up of P6,900,000 paid to the vendor, P300,000 paid to the local authority as a property transfer tax and P400,000 paid to professional advisers. The useful life of the property is 40 years. What is the gain to be recognized for 2019 in respect of the investment property? Answer: P400,000 Solution:...