CONCEPTUAL FRAMEWORK Chapters 21-24 Problems PDF

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St. Paul University System 8400 Surigao City, PhilippinesCARMEL M. YPARRAGUIRRE Myka Bianca G. Logronio, CPABSA – 202 Conceptual Framework and Accounting StandardsChapter 21INVESTMENT PROPERTY1. Define an investment property. - Investment property is defined as property (land or building or part of ...

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St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

CARMEL M. YPARRAGUIRRE Myka Bianca G. Logronio, CPA BSA – 202 Conceptual Framework and Accounting Standards

Chapter 21 INVESTMENT PROPERTY 1. Define an investment property. - Investment property is defined as property (land or building or part of a building or both) held by an owner or by the lessee ander a finance lease to earn rentals or for capital appreciation or both. In other words, only land and building can qualify as investment property. An equipment or any movable property cannot qualify as investment property. 2. Define an owner-occupied property. - The property held by an owner for use in the production or supply of goods or services, or for administrative purposes is known as owner-occupied property. 3. Give examples of investment property. - Examples of investment property are: a.Land held for long-term capital appreciation. b. Land held for a currently undetermined use. For example, if an entity has not determined that it will use the land either as owneroccupied property or for short-term sale in the ordinary course of business, the land is considered to be held for capital appreciation and therefore investment property. c. Building owned by the reporting entity leased out under an operating lease d. Building that is vacant but is held to be leased out under an operating lease e. Property that is being constructed or developed for future use as investment property. 4. What is the treatment of property that is partly investment and partly owneroccupied? - Certain properties may include a portion that is held to earn rentals or for appreciation and another portion that is held for manufacturing or administrative purposes. If these options could be sold or leased out separately, an entity shall account the portions separately as investment and owner-occupied property. If the portions could not be sold separately, the property is investment property if only an insignificant portion is held for property manufacturing or administrative purposes. 5. What is the treatment of property leased to an affiliate? - From the perspective of the individual entity that owns it, the property leased to another subsidiary or its parent is considered an investment property. However, from the perspective of the group as a whole and for purposes of consolidated financial statements, the property treated as owner-occupied property.

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6. When is an investment property recognized? - Investment property shall be recognized as an asset when: a. It is probable that the future economic benefits that are associated with the investment property will flow to the entity a. b. The cost of the investment property can be measured reliably. 7. Explain the initial measurement of investment property. - An investment property shall be measured initially at its cost. Transaction costs shall be included in the initial measurement. The cost of a purchased investment property comprises the purchase price and any directly attributable expenditure, directly attributable expenditure includes professional fees for legal services, property transfer taxes and other transaction costs. 8. What is the measurement of investment property subsequent to initial recognition? - An entity shall choose either of the following models as the accounting policy and shall apply that policy to all of the investment property: a. Fair value model- The investment property is carried at fair value. Any changes in fair value are included in profit or loss. b. Cost model- The investment property is carried at cost less any accumulated depreciation and any accumulated impairment losses. 9. Explain the cost model and fair value model of measuring investment property. - Cost Model If the entity decides to measure the investment property under the cost model, the asset shall be carried at cost less accumulated depreciation and any accumulated impairment loss. Fluctuations in the fair value of the investment property property from year to year are not recognized. Instead, the annual depreciation and any impairment of the investment property are charged against profit or loss for the year. -

Fair Value Model If the entity decides to measure the investment property under the fair value model, the changes in fair value from year to year are recognized in profit or loss. No depreciation is recorded for the investment property. The net gains and losses from fair value adjustments shall be disclosed.

10. Explain the fair value of investment property. - Fair value of an asset is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The price in the principal market used to measure fair value shall not be adjusted for transaction cost.

St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

Equipment such as lift or air-conditioning is often an integral part of a building and is generally included in the fair value of the investment property. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture because the rental income relates to the furnished office. The fair value of investment property excludes prepaid or accrued operating lease income.

Problem 21-1 (IFRS) 

Galore 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, 2020 The cost of the construction was P60,000,000. The useful life of the condominium is 25 years and the residual value is P5,000,000 An independent valuation expert provided the following fair value at each subsequent year-end December 31, 2020 (55,000,000) December 31, 2021 (53,000,000) December 31, 2022 (60,000,000) 1. Under the cost model, what amount should be reported as annual depreciation of investment property? a. 1,800,000 b. 2,000,000 c. 2,200,000 d. 0 Problem 21-2 (IFRS) 

Eragon Company and its subsidiaries own the following properties at year-end:

Land held by Eragon for undetermined use

5,000,000

A vacant building owned by Eragon and to be leased out under an operating lease

3,000,000

Property held by a subsidiary of Eragon, a real

St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

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

Machinery leased out by Eragon to an unrelated party under an operating lease

1,000,000

1. What is the total investment property that should be reported in the consolidated statement of financial position of the parent and its subsidiaries? a. 12,000,000 b. 15,500,000 c. 10,500,000 d. 9,500,000 2. What total amount should be included in property, plant and equipment in the consolidated statement of financial position? a. 11,000,000 b. 13,000,000 C. 10,500,000 d 8,500,000 Problem 21-3 (IFRS) Bona Company purchased an investment property on January 1, 2018 for P2,200,000, The property had a useful life of 40 years and on December 31, 2020 had a fair value of P3,000,000 On December 31, 2020 the property was sold for net proceeds of P2,900,000. The entity used the cost model to account for the investment property. What amount should be recognized as gain for 2020 regarding the disposal of the property? a. 865,000 b. 810,000 c. 100,000 d. 700,000

St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

Problem 21-4 (IFRS) Dayanara Company owned three properties which are classified as investment property

Each property was acquired three years ago with a useful life of 25 years. The accounting policy is to use the fair value model for investment property. What amount should be recognized as loss from change in fair value for 2021? a. 189,000 b. 150,000 c. 300,000 d. 450,000 Problem 21-5 (IFRS) Mikka Company acquired a building on January 1, 2020 for P9,000,000. At that date, the building had a useful life of 30 years. On December 31, 2020, the fair value of the building was years. P9,600,000 and on December 31, 2021, the fair value Was P9,900,000 The building was classified as an investment property and accounted for under the cost model. What is the carrying amount of the investment property on December 31, 2021? a. 8,400,000 b. 9,000,000 c. 9,900,000 d. 9,570,000 Problem 21-6 (IFRS) Paradise Company's accounting policy with respect to investment property is to measure the property at fair value at the end of each reporting period. One investment property was measured at P8,000,000 on December 31, 2020. The useful life of the property is 40 years.

St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

The property had been acquired on January 1, 2020 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. What amount of gain should be recognized for 2020 in respect of the investment property? a. 400,000 b. 700,000 c. 800,000 d. 590,000

Problem 21-7 Multiple Choice 1. Which statement best describes investment property? a. Property held for sale in the ordinary course of business b. Property held for use in the production and supply of goods and property held for administrative purposes c. Property held to earn rentals or for capital appreciation d. Property held for capital appreciation 2. An owner-occupied property is held by an owner a. For use in the production of goods or services. b. For administrative purposes. c. For sale in the ordinary course of business. d. For use in production of goods and services and for administrative purposes. 3. Investment property includes all of the following, except a. Land held for capital appreciation b. Land held for currently undetermined use c. Building owned by the reporting entity leased out under an operating lease d. Property held for sale in the ordinary course of business 4. Which of the following is an investment property? a. Property being constructed or developed on behalf of third party b. Property that is being constructed and developed as investment property c. Property held for future development and subsequent use as owner-occupied property d. Owner-occupied property awaiting disposal 5. An investment property shall be measured initially at a. Cost b. Cost less impairment C. Depreciable amount less impairment d. Fair value less impairment 6. Which statement is true if the property is partly investment and partly owneroccupied?

St. Paul University Surigao St. Paul University System 8400 Surigao City, Philippines

I. If the investment and owner-occupied portions could be sold or leased out separately, the portions shall b accounted for separately as investment property and owner occupied property. II. If the investment and owner-occupied portions could not be sold or leased out separately, the property is investment property if only an insignificant portion is held for manufacturing or administrative purposes. a. I only b. II only c. Both I and II d. Neither I nor II 7. If an entity owns and manages a hotel, services provided to guests are a significant component of the arrangement as a whole. In such a case, the hotel is classified as a. Investment property b. Owner occupied property c. Partly investment property and partly owner-occupied property d. Neither investment property nor owner-occupied property 8. Directly attributable expenditures related to investment property include a Professional fees for legal services, property transfer taxes and other transaction cost. b. Start up costs C. Initial operating loss incurred before the investment property achieves the planned level of occupancy d. Abnormal amount of waste material, labor and other resources incurred in constructing or property developing the property. 9. Which statement is true concerning property leased to an affiliate? I. From the perspective of the individual entity that owns it, the property leased to an affiliate is considered an investment property II. From the perspective of the affiliates as a group and for purposes of consolidated financial statements, the property is treated as owner-occupied property. a. Both I and II b. Neither I nor II c. I only d. II only 10. Which statement is incorrect in determining the fair value of an investment property? a. An entity shall determine the fair value of investment property by deducting transaction cost that may be incurred upon disposal. b. The fair value of investment property shall reflect market conditions at the end of the reporting period. c. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture because the rental income relates to the furnished office. d. The fair value of investment property excludes prepaid or accrued operating lease income. Problem 21-8 Multiple Choice (IFRS) 1. Subsequent to initial recognition, the investment property shall be measured using a. Fair value model or revaluation model b. Fair value through profit or loss model

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c. Cost model or fair value model d. Cost model or revaluation model 2 If the entity uses the fair value model for the investment property, changes in fair value are a. Recognized in profit or loss b. Recognized in retained earnings C. Recognized in other comprehensive income d. Not recognized 3. If the entity uses the fair value model for investment property, which statement is true? a. The entity should value the property at cost less accumulated depreciation and impairment. b. The entity should report the increase in fair value in other comprehensive income for the period. c. The entity depreciates the investment property d. The entity does not record depreciation. 4. Transfers from investment property to property, plant and equipment are appropriate a. When there is change of use. b. Based on the discretion of management. c. Only when the entity adopts the fair value model. d. The entity can never transfer property into another classification once it is classified as investment property . 5. Under IFRS, assets classified as investment property are a. Held for rental income b. To be sold for a quick profit c. Held for rental income or to be sold for a quick profit d. Held for sale in the ordinary course of business 6. Which statement regarding investment property is correct? a. If the entity elects the fair value model, no depreciation is taken b. Gain or loss from fair value adjustment is reported in the income statement c. If the entity elects the cost model, depreciation should be recognized d. All of these statements are correct regarding investment property 7. An investment property is derecognized when a. It is disposed to a third party. b. It is permanently withdrawn from use. c. No future economic benefits are expected from the disposal. d. In all of these cases 8. Gain or loss from disposal of investment property shall be determined as the difference between the a. Net disposal proceeds and carrying amount.

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b. Gross disposal proceeds and carrying amount. c. Fair value and carrying amount of the asset. d. Gross disposal proceeds and fair value of the asset . 9. Which disclosure must be made when the cost used for investment property? a. The fair value of the property b. The present value of the property c. The value in use of the property d. The net realizable value of the property 10. Which of the following disclosures shall be made when the fair value model has been adopted? a. Depreciation method used b. The amount of impairment loss recognized c. Useful life d. Net gains or losses from fair value adjustments Problem 21-9 Multiple Choice (PAS 40) 1. When the entity uses the cost model, transfers between investment property owneroccupied property and inventory shall be made at a. Fair value b. Carrying amount c. Cost d. Assessed value 2. A transfer from investment property carried at fair value to owner-occupied property shall be accounted for at a. Fair value, which becomes the deemed b. Carrying amount c. Historical cost d. Fair value less cost of disposal 3. If owner-occupied property is transferred to investment property that is to be carried at fair value, the difference between the carrying amount and fair value shall be a. Included in profit or loss b. Included in retained earnings c. Included in other comprehensive income d. Accounted for as revaluation of property 4. If an inventory is transferred to investment property to be carried at fair value, the remeasurement to fair value is a. Included in profit or loss b. Included in other comprehensive income c. Included in retained earnings d. Accounted for as revaluation surplus

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5. When an investment property under construction is completed and carried at fair value, the difference between the carrying amount and fair value shall be a. Included in profit or loss b. Included in retained earnings c. Included in other comprehensive income d. Accounted for as revaluation of property

Chapter 22 AGRICULTURE 1. Define biological assets, agricultural produce and harvest. - Biological assets are living animals and living plants. Agricultural produce is the harvested product of an entity’s biological assets. Harvest is the detachment of produce from a biological asset or the cessation of a biological assets life processes. 2. What is an agricultural activity? - Agricultural activities" means agricultural uses and practices including, but not limited to: Producing, breeding, or increasing agricultural products; rotating and changing agricultural. crops; allowing land used for agricultural activities to lie fallow in which it is plowed and tilled but. 3. Explain biological transformation. - Biological transformation comprises the processes of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological assets.  Asset changes through: A. Growth- an in quantity or improvement in quality of an animal or plant. B. Degeneration- a decrease in quantity or deterioration in quality of an animal or plant. C. Procreation- creation of additional living animals or plant.  Production of agricultural produce such as latex, tea leaf, wool and milk.

4. Explain the recognition of biological asset and agricultural produce. - Recognition of biological asset is an entity shall recognize a biological asset or agricultural produce when: A. The entity controls the asset as result of past event. B. It is probable that economic benefits associated with the assets will flow to the entity. C. The fair value or cost of the asset can be measured reliably. In agricultural activity, control may be evidenced by, for example, legal ownership of cattle and the branding or otherwise marking of the cattle on acquisition or birth.

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