UNIVERSITY OF SANTO TOMAS
UST - ALFREDO M. VELAYO COLLEGE OF ACCOUNTANCY
CA 51016
Practice Set – Investment Properties
Second Term, Academic Year 2022-2023
NAME: _______________________
THEORETICAL (2 POINTS)
DATE________
PROBLEMS (3 POINTS)
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PART I. THEORIES
Put the letter of your choice on the answer sheet provided.
1. The following assets are recognized upon the initial measurement on the basis of fair value
rather than historical cost except:
a. Investment property
b. Held-for-trading securities
c. Biological asset
d. Non-monetary asset received through government grant
2. If the property comprises a portion that is held to earn rentals or for capital appreciation and
another portion that is held for use in the production or supply of goods or services or for
administrative purposes. If the portions could not be sold separately, the entity shall:
a. Recognize both portions as Property, Plant and Equipment (PPE) only.
b. Recognize both as Investment property only if the other portion is insignificant in nature.
c. Recognize the whole property either as Investment Property or PPE depending on
which portion has the larger Fair Value.
d. Recognize both portions as Investment Property only.
3. Which statement is incorrect regarding investment property?
a. 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.
b. The cost of the purchased investment property includes its purchase price and any directly attributable expenditure
c. Transfer from investment property to property, plant, and equipment are appropriate
only when the entity adopts the fair value model under PAS 38.
d. Investment property includes property that is being constructed or developed as an investment property
4. Investment property includes
a. Property that is being constructed or developed for use as an investment property.
b. Property that is being redeveloped for continuing use as an investment property.
c. Property being constructed or developed on behalf of third parties.
d. Property leased to another entity under a finance lease.
5. A gain arising from a change in the fair value of an investment property for which an entity
has opted to use the fair value model is recognized in
a. Net profit or loss for the year
b. General reserve in the shareholder’s equity
c. Valuation reserve in the stockholders’ equity
d. None of the answers are correct
6. When an owner-occupied property is transferred to investment property at fair value, a decrease
in the carrying amount of the property to its fair value at the date of transfer
a. Is recognized in profit and loss or charged against the revaluation surplus to the extent
of its credit balance
b. Is recognized in profit or loss at all times
c. Is absorbed by retained earnings
d. Is carried directly to equity
7. Which of the following statements best describe owner-occupied property under PAS 40?
I.
Property held for sale in the ordinary course of business
II.
Property held for use in the production and supply of goods and services
III.
Property held to earn rentals
IV.
Property held for administrative purposes
a. I and II
b. II and IV
c. II and III
d. III and IV
8. Which of the following items is an example of investment property?
a. Property that is leased to another entity under a finance lease
b. Property that is being constructed or developed on behalf of third parties
c. Property that is being constructed or developed for future use as investment property
d. Property held for short-term sale in the ordinary course of business
9. If the owner-occupied property is transferred to investment property that is to be carried at fair
value, the excess of carrying amount of the property over its fair value shall be
a. Included in profit or loss
b. Included in other comprehensive income
c. Treated as an adjustment to the opening balance of retained earnings
d. Included in equity
10. Under PAS 40, a transfer from investment property carried at fair value to owner-occupied
property is accounted for at
a. Fair value, which becomes is the deemed cost
b. Carrying amount
c. Historical cost
d. Fair value less cost of disposal, which becomes the deemed cost
11. An entity has an investment property and uses the fair value model. Which statement is true?
a. The entity should have the investment property at cost less accumulated depreciation
and less accumulated depreciation loss
b. The entity should report the increase in fair value in other comprehensive income
c. The entity depreciates the investment property using normal depreciation method
d. The entity does not record depreciation on the investment property
12. I. Gains or losses arising from the retirement or disposal of investment property shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset.
II. Gains or losses arising from the retirement or disposal of investment property shall be recognized in profit or loss in the period of the retirement or disposal.
a. Only Statement I is correct
b. Only Statement II is correct
c. Both statements are correct
d. Both statements are incorrect
13. I. An investment property shall be derecognized (eliminated from the statement of financial
position) on disposal.
II. An investment property shall be derecognized (eliminated from the statement of financial
position) when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.
a. Only Statement I is correct
b. Only Statement II is correct
c. Both statements are correct
d. Both statements are incorrect
14. I. For a transfer from inventories to investment property that will be carried at fair value, any
difference between the fair value of the property at that date and its previous carrying amount
shall be recognized in profit or loss.
II. When an entity completes the construction or development of a self‑constructed investment
property that will be carried at fair value, any difference between the fair value of the property
at that date and its previous carrying amount shall be recognized in profit or loss.
a. Only Statement I is correct
b. Only Statement II is correct
c. Both statements are correct
d. Both statements are incorrect
15. I. When an entity decides to dispose of an investment property without development, it continues to treat the property as an investment property until it is derecognized (eliminated from the
statement of financial position) and does not reclassify it as inventory.
II. If an entity begins to redevelop an existing investment property for continued future use as
investment property, the property remains an investment property and is not reclassified as
owner‑occupied property during the redevelopment.
a. Only Statement I is correct
b. Only Statement II is correct
c. Both statements are correct
d. Both statements are incorrect
16. I. The cost of a purchased investment property comprises its purchase price and any directly
attributable expenditure.
II. Start‑up costs (unless they are necessary to bring the property to the condition necessary for
it to be capable of operating in the manner intended by management) will not increase the cost
of an investment property.
a. Only Statement I is correct
b. Only Statement II is correct
c. Both statements are correct
d. Both statements are incorrect
17. Which two of the following statements best describe an owner-occupied property under PAS
40?
A. Property held for sale in the ordinary course of business.
B. Property held for use in the production and supply of goods and services.
C. Property held to earn rentals.
D. Property held for administrative purposes.
a. A and B
b. B and D
c. B and C
d. C and D
18. The cost of the land typically includes all, except
a. Grading, filling, draining and clearing cost
b. Special assessment for drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
19. When investment property under construction is completed and carried at fair value, the difference between fair value and carrying amount should be
a. Disregarded
b. Included in profit or loss
c. Recognized in retained earnings
d. Accounted for as revaluation
20. If the entity uses the fair value model for the investment property, which statement is correct?
a. Changes in fair value are reported in profit or loss in the current period
b. Changes in fair value are reported as an extraordinary gain
c. Changes in fair value are reported in other comprehensive income for the period
d. Changes in fair value are reported as deferred revenue for the period
PART II. PROBLEMS
Put your answers on the answer sheet provided.
1. ABC Company acquired a real property for speculation purposes with the intention of selling
it at a higher price in the long-term. The property was acquired at a cash price of P3,000,000.
The property has P100,000 unpaid real property tax assumed by ABC Company. In addition,
ABC Company also paid the following transaction costs: broker’s commission of P20,000 and
registration cost of P35,000. How much should ABC Company record as the value of the investment property? 3,155,000
2. On December 31, 2021, Push Mo Lang Corporation sold its land held for capital appreciation
for P6,250,000, net of disposal cost, and other transaction costs of P150,000. This property was
acquired at a historical cost of P5,120,000 including total transaction costs of P190,000 and
has a fair value of P6,200,000 as of December 31, 2021. If the company uses the cost model,
what amount of realized gain on the sale of the investment property should Push Mo Lang
Corporation to recognize? 1,130,000 Gain
3. On December 31, 2021, Push Mo Lang Corporation sold its land held for capital appreciation
for P6,250,000, net of disposal cost, and other transaction costs of P150,000. This property was
acquired at a historical cost of P5,120,000 including total transaction costs of P190,000 and
has a fair value of P6,200,000 as of December 31, 2021. If the company uses the fair value
model, what amount of realized gain on the sale of the investment property should Push Mo
Lang Corporation to recognize? 50,000 Gain
4. At the beginning of the year 2022, ABC Company has an investment property acquired at a
cost of P4,000,000 that is to be accounted for under the cost model. Depreciation of P100,000
is recognized annually, and periodic continuing maintenance costs of P10,000 per month as
well as a property tax of P10,000 are incurred by the company on an annual basis. What should
be the carrying value of the investment property at the end of the year 2022? 3,900,000
5. On September 30, 2021, Di Na Muli, Inc. has a building being held for lease under an operating
lease agreement that was carried at a fair value with a carrying amount of P2,500,000 (the
historical cost of which is P2,400,000). On December 31, 2021, the fair market value of the
property is P2,600,000. On September 30, 2022, the fair market value of the property is
P2,800,000. On the same date, Di Na Muli, Inc. decided to reclassify / transfer the property to
inventory. What amount should be the value of the inventory at the time of reclassification?
2,800,000
6. On June 30, 2020, Tayo Na Lang Dalawa Co. acquired a parcel of land for capital appreciation
at a total cost of P5,000,000. At December 31, 2020, the carrying value of the property in the
books of the company is P6,000,000. On December 31, 2021, Tayo Na Lang Dalawa Co. decided to use the property and immediately reclassified the same as plant asset (owner-occupied
property). What would be the initial cost of the plant asset if it has a fair value of P6,500,000
at conversion date? 6,500,000
7. On June 30, 2020, Tayo Na Lang Dalawa Co. acquired a parcel of land for capital appreciation
at a total cost of P5,000,000. At December 31, 2020, the carrying value of the property in the
books of the company is P6,000,000. On December 31, 2021, Tayo Na Lang Dalawa Co. decided to use the property and immediately reclassified the same as plant asset (owner-occupied
property). What amount of revaluation surplus Tayo Na Lang Dalawa Co. would recognize at
the time of conversion? 0
8. Paradise Company, a real estate entity, had a building with a carrying amount of P40,000,000 on
December 31, 2022. The building was used as offices of the entity’s administrative staff. On December 31, 2022, the entity intended to rent out the building to independent third parties. The staff
will be moved to a new building purchased early in 2022. On December 31, 2022, the original
building had a fair value of P70,000,000. The accounting policy is to carry investment property at
fair value. What amount should be recognized as revaluation surplus as a result of the reclassification to investment property on December 31, 2022? 30,000,000
9. At the beginning of the year 2021, Wag Ka Nang Umiyak Inc. has an investment property
acquired at a cost of P4,000,000 that is to be accounted under the cost model. Depreciation of
P100,000 is recognized annually and periodic continuing maintenance costs of P10,000 per
year as well as property tax of P10,000 are incurred by the company on an annual basis? What
should be the carrying value of the investment at the end of the year 2021? 3,900,000
10. ABC Company acquired an investment property with an installment price of P2,400,000. The
acquisition of the property requires a down payment of 20% and a non-interest bearing note
payable at the end of each year for five years. The prevailing market rate of interest for similar instrument is 12%. The present value factor of annuityof 12% for four periods is 3.605.
ABC Company incurred transaction costs amounting to P50,000 for the property. What is the
cost of acquiring the property? 1,914,320
11. On January 1, 2022, Nam Company acquired property consisting of ten identical freehold d tached
houses each with separate legal title including the land on which it is built for P100,000,000, 20%
of which is attributable to the land. The units have a useful life of 50 years. The following costs
were also incurred on such date:
Nonrefundable transfer taxes not included in the
purchase price
10,000,000
Legal cost directly attributable to the acquisition
500,000
Reimbursement to the previous owner for prepaying nonrefundable property
taxes for the six-month period ending June 30,
2022
50,000
Advertising campaign
250,000
Cost of opening function to celebrate new rental
business
100,000
On June 30, 2022, the entity paid local property taxes of P100,000 for the year ending June 30, 2023.
Throughout 2022, the entity incurred repairs and maintenance cost of P60,000. The entity used one of
the ten units to accommodate the administration and maintenance staff. The other nine units were rented
out to independent parties under operating leases. The entity elected to use the fair value model to
account for investment property and on December 31, 2022, the fair value of each unit was
P12,500,000. What amount should be reported as gain from change in fair value of the investment
property for 2022? 13,050,000
12. Verdad Company purchased a parcel of land as a factory site. An old building on the land was
demolished and construction started on a new building that was completed at the end of the current year.
Purchase price of land
3,200,000
Demolition of old building
200,000
Architect fee
300,000
Legal fee-title investigation
Construction cost
50,000
8,500,000
Imputed interest on construction
cost
140,000
Landfill for building site
190,000
Clearing of trees from building
site
100,000
Timber sold
Temporary building used for
construction activities
Land survey
Excavation for basement
What amount should Verdad Company capitalize as cost of land?
30,000
290,000
40,000
110,000
3,580,000
13. During the current year, Burr Company had the following transactions pertaining to a new
office building:
Purchase price of land
600,000
Legal fees for contract to purchase land
20,000
Architect fee
80,000
Demolition of old building on site to make room for
construction of new to building
50,000
Sale of scrap from old building
30,000
Construction cost of new building fully completed
3,500,000
What amount should be reported as cost of building? 3,630,000
14. ABC Company has an investment property with a historical cost of P2,400,000. On December
31, 2022, the fair value of the investment property is P2,800,000. What amount of gain or loss
should be recognized in the other comprehensive income? 0
15. Fixing A Broken Heart, Inc. acquired a parcel of land on January 1, 2021 for speculation purposes with an intention of selling it at a higher value in the long-term. The property was acquired at 5,000,000. The property has unpaid real property tax to be paid by Fixing A Broken
Heart, Inc. amounting to P125,000. The company also paid for the commission of the broker
and registration cost amounting to P150,0000 and P100,000, respectively. The fair value of the
property is set at P5,300,000. Assuming the company adopts the cost model, what is the value
of the property on December 31, 2021? 5,375,000
16. Fixing A Broken Heart, Inc. acquired a parcel of land on January 1, 2021 for speculation purposes with an intention of selling it at a higher value in the long-term. The property was acquired at 5,000,000. The property has unpaid real property tax to be paid by Fixing A Broken
Heart, Inc. amounting to P125,000. The company also paid for the commission of the broker
and registration cost amounting to P150,0000 and P100,000, respectively. The fair value of the
property is set at P5,300,000. Assuming the company adopts the fair value model and the useful
life of the property is five (5) years, what is the value of the property on December 31, 2021?
5,300,000
17 – 20) ABC Company acquired property for speculation purposes on January 1, 2019 for P2,200,000.
The property had a useful life of 40 years and on December 31, 2021, the same property had a fair
value of P3,000,000. On December 31, 2021, the property was sold for a price equivalent to
P2,900,000. The entity used the cost model to account for the said property.
17. What is the carrying amount of the investment property on December 31, 2021? 2,035,000
18. What amount of gain or loss should be recognized in the income statement of 2021 for any change
in the fair value of the property? 0
19. What amount of gain or loss should be recognized in the other comprehensive income of 2021 for
any change in the fair value of the property? 0
20. What amount of gain or loss should be recognized for 2021 regarding the disposal of the property?
865,000