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\ Excel Professional Services, Inc.
Management Firm of Professional Review and Training Center (PRTC)
ee anil 7339344 * Santiago Cty, cabela(0218)2807130 * Angeles City Pampanga(0B47)540.
wt “ Celamba City, Laguna * Dasmanfas Cty, Cavite * Lipa City, Batangas 10917) 8852769
(VISAYAS) Bacolod City (034) 4346214 * Cebu City (032) 2537900 loc. 218
(YARN RES Sto Be Oro tity (0995) 0570499 *’Davan City (082) 2250049
CPA REVIEW Soe ee ee a ene
DISCUSSION PROBLEMS
since 1977
FAR
| FAR.2608-Investment Property
1. Investment properties are b. If the services provides are elatively insignificant
2. Identifable non-monetary assets without physical Component of the afrangement as 2 whole (for
substance instance, the building owner supplies securty and
b. Properties hel to eam rentals or for capital maintenance services to the lessees), then the
appreciation ar both nity, may. treat the property as” investment
c. Aesets held for seie in the ordinary course of property
business c. Where the services provided are more significant
4. Tangible items that are held for use in the {guch af In the case of an owner-managed hotel),
production oF supply of goods or services, for the property should be classified as investment
Fental to others, or for administrative purposes; property. fr a
wey tre expected to be used during more than one ——
investment property?
| Building held for sale in the ordinary course of
business,
II. Building held to earn rentals under operatiag
leases.
HI. Land held for capital appreciation.
IV. Land held for undetermined future use
¥. Equipment held to earn rentais under operating
leases.
1, 1, TH IV and V
Tt, TH, 1Vand V
if, 1V and V
U1, and 1V
classified 25
5. Which of the following is not an investment property?
a. A property held to earn rentals aid an insignificant
portion is held for adrinistratiwe purposes.
An office building held to earn rentals where the
owner provides security and maintenance services
to the lessees who occupy the duilding.
‘An owner-managed hotel
‘A property leased to and occupied by 2 subsidiary
in the lessor's separate financial statements.
The Buckethead Company has a single investmen
property which had originally “st 580,000 on
January 2015. At 31 December Joi: its fair value was
600,000 and at 31 December 2018 1t haa ~ fair vaiue rt
590,000. On acquisition, the property hau 2 usefu! fie
of 40 years.
What should be the expense recognized in Buckethead's
profit or loss for the year ending 31 December 2018
Under each of the fair value model and the cost model?
Fax, yalue model Costmodet
a Pi4,750 14,500
b. 10,000 14/500
© £24,500 10,060
8, 13'000 P14, 750
7. Vhe Niagara Company owns three properties which are
classified as investment properties according to PAS4O
Investment property. Details of the propetties are givan
below (amouints in thousands)
InitiatFairvalue at Fain value at
cost 31 Dec2017 3, Dec 2018
Property (1) 270 320 350
Property (2) 345 305, 235
Property (3) 330 3e5 360
Each property was acquired in 2014 with a useful life of
50 years. The company's accounting polidy 15 to use the
forr value model for investment properties.
What 15 the gain or loss to be recognized in Niagara's
prafit or loss for the year ending 31 Deceriber 20187
2. P18,900 less, 230,000 gain
b. 935,000 less d. P45,000 toss
1¢ the following information far the next two questions.
Aglipay, Inc. completed the construction of a shopping matt
at the and of 2016 for a total cost of P100 million. The
‘crall has an estimated economic ife of 25 years. The mail
was construcses for the purpose of earning rentals by
ng out space in the shopping mall to tenants.
company spted to use the fair value model to measure the
happing mall. An independent valuation expert was used
by the company to fair velue the shopping mali on an
basis. According to the fair valuation expert the
fair values of the shopping mali at the end of 2017 and
18 were P20 million and P11S million, respectively.
How much should be recognized in profit or loss in
2018 as a result of the fair value changes?
3. P23,000,009 <.PS,000,000
b. P13,000,600 a. P °
How much Is the carrying amount of the shopping malt
on December 31, 2018 if Aglipay used the cost model?
a. £169,000,000 . P96,000,000
b. P118,000.000 dé. 92,000,000
b's The following will most likely result to reclassification,
except
5. Commencement of owner-occupation,
b. End of owner-occupation.
© Commencement of an cperating lease to another
warty.
6. Redevelopment of an existing investment property.
Han, Inc, owns 2 building purchased on January 1,
2014 for P1UO million. The building was used as the
company’s head office. The building has an estimated
useful Ife of 25 years. In 2018, the company
transferred its head cffice and decided to lease out the
old ullding. Tenants began occupying the old building
by the end of 2018. On December 31, 2018, the
company reclassified the bullding as’ investment
property to be carried a° fair value, The fair value on
the date of reclassification was P70 million. How much
should be recognized in the 2018 profit or loss as a
‘Page 4 of 6
result of the transfer from owner-occupied to
investment property?
2, P14,000,006 ¢. P10,000,000
b. P 4,906,000 ae °
- done -
FAR.2608 : e
EXCEL PROFESSIONAL SERVICES, INC.
LECTURE NOTES
SUMMARY OF PAS 40 INVESTMENT PROPERTY
Objective
The objective of this Standard is to prescribe the
accounting treatment for investment property and
related disclosure requirements.
Scope
‘This Standard shall" be applied in the recognition,
measurement and disclosure of investment property,
‘This Standard does not apply to.
«biological assets related to agricultural activity (see
PAS 41)
© mineral rights and mineral reserves such as oil
natural gas and similar non-regenerative resources
‘+ matters covered in PAS 17, including:
© classification of leases as finance leases or
‘operating (eases
© recognition of lease income from investment
property (see also PAS 18 )
© measurement in a lessee’s financial statements of
property interests held Clunder a lease accounted
for as‘an operating lease
© measurement in 2 lessor’s financial statemients of
its net investment in a finance lease
© accounting far sale and leaseback transactions
& disclosure about finance leases and operating
leases.
Classification Issues
Property held under an operating lease
'A property interest that is Nel by a lessee under an
operating lease may be classified and accounted for as
investment property provided that
‘s the rest of the definition of investment property is
met;
© the operatin:
finance lease in accordance with PAS 17 Leases;
and 5
+ the lessee uses the fair value model set out in this
Standard for the asset recognized.
|An entity may make the foregoing classification on
property-by-property basis.
Partial own use
If the owner uses part of the property for its own use,
‘and part to earn rentals or for capital appreciation, and
the portions can be sold or leased out separetely, they
are accounted for separately. Therefore the part that is
Fented out is investment property. If the portions cannot
be. sold or leased out separately, the property is
investment property only If the owner-occupied portion
is insignificant.
Ancillary services
If the enterprise provides ancillary services to the
occupants of 2 property held by the enterprise, the
Sppropriateness of classification a5 investment property
ie determined by the significance of the services
provided. If those services are a relatively insignificant
Eomponent of the arrangement 2s a whole (for instance,
the bullding owner supplies security and maintenance
services to the lessees), then the enterprise may treat
the property as investment property. Where the services
provided bre more significant (such as in the case of an
Page 5 of 6
lease is accounted for as ifit were a -
‘www.prtc.com.ph
owner-managed hotel), the property should be classified
as owner-occupied.
Intracompany rentals
Property rented to a parent, subsidiary, or fellow
subsidiary is not investment property in consolidated
financial statements that include both the lessor and the
lessee, because the property 1s owner-occupied from the
perspective of the group. However, such property could
Qualify as investment property in the separate financial
Statements of the lessor, if the definition of investment
property is otherwise met.
Recognition
Investment préperty should be recognized as an asset
when it is probable that the future economic benefits
that are associated with the property will flow to the
enterprise, and the cost of the property can be reliably
measured
Initial measurement
Investment property is initially measured at cost,
including transaction costs (e.g. professional fees for
\egal services and property transfer taxes). Such cost
should not include start-up costs, ebnormal waste, or
initial operating losses incurred before the investment
property achieves the planned level of occupancy.
Cost is the amount of cast) or cash equivalents paid or
the fair value of other consideration given to acquire an
asset at the time of Its acquisition or construction or,
nhere applicable, the amount attributed to that asset
when initially recognized in accordance with the specific
Fequirements of other PFRS, eg PFRS 2 Share-based
Payment.
Measurement subsequent to initial recognition
Fair value model
«Investment property is remeasured at fair value.
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.
© There is a rebuttable presumption that the
enterprise will be able to determine the fair value of
‘an investment property reliably on a continuing
basis. However, if, in exceptional circumstances, an
entity follows the fair value modei but at acquisition
concludes that a property's fair value is not expected
to be reliably measurable on a continuing basis, the
| property is accounted for in accordance with the
benchmark treatment under PAS 16, Property, Plant
and Equipment (cost less accumulated depreciation
less accumulated impairment losses)
| Where a property has previously been measured at
fair value, it should continue to be measured at fair
value until disposal, even if comparable market
transactions become less frequent or market prices
become less readily available.
Cost Mode!
After initial recognition, investment property is
‘accounted for in accordance with the cost model as set
out in PAS 16, Property, Plant and Equipment ~ cost less
accumulated depreciation and less accumulated
impairment losses,
FAR.2608
La e e ‘
EXCEL PROFESSIONAL SERVICES, INC.
Transfers to or from Investment Property ‘+ if classification is difficult, the eriteria to distinguich ”
Ciassification investment property from owner-occupied property
‘and from property held for sale
+ tne methods and significarit assumptions applied in
determining the fair value of Investment property
= the extent to whi
Ivansfers to, or from, investment proparty should only
be made when there is a change in use, evidenced by
* commencement of owner-eccupation (transfer
cu " nthe Tair value of investment
Pan eneeatment’ property on owner-occupied ‘
property) Cael brogerty is based on a valuation by a qualified
» Foramerzement of development vith + view to Independent value; if there hak been no. such
sale (transfer -from investment property to: ahaa Sere
rental inconie from investment propeny
+ end of owner-occupation (transfer from owner=
eee rsranas | direct operating expenses (including repairs
jeceunied Pee eyecare and maintenance) arising from. tavestment
«commencement of an operating lease to another property that generates rental income during
party (transfer from inventories to investment arate rental inc 7
the period
property); or direct operating expenses (including repairs
‘and maintenance) arising from investment
Property that did not generate rental income
Guring the perio
the cumulative change in fair value recognised
in profit or loss on 2 sale from a poo! af assets
In which the cust mode is used into a poo! in
which the fair value model is used
+ restrictions on the realisability of investment
property or the remittance of income and proceeds.
of aisposat
‘© contractual obligations to purchase, construct, oF
develop investment property or for repairs,
maintenance of enhancements
when an entity decides to sell en investment property
without development, the property is not reclassified as
investment property but is dealt with as investment
property until it is disposed of.
‘The following rules apply for accounting for transfers
between categories
+ for a transfer from investment property cartieg at
fair value to owner-occupied property or inventories,
the fair value at the change of use is the ‘cost’ of the
property under its nevr classification;
© for a transfer from owneroctupied property
investment property carried at fair value, PAS 1
should be applied up to the date of reclassification
Any difference arising between the carrying amount
under PAS 16 at that date and the fair vaiue is dealt
with as a revaluation under PAS 10; and
+ for a transfer from inventories ty investment
property at fair value, any difference between the
fair value at the date of transfer and it previous
carrying amount should be recognized in ret profit
Additional Disciesures for the Fair Value Model
+a raconciiation between the carrying amounts of
te property at the beginning and end of the
period, showing additions, disposals, fair -alue
adjustments, net foreign’ exchange differences,
transfers a and from inventories and owner:
occupied property, and other changes
+ significant adjustments to an outside valuation (iF
any)
«if an entity that otherwise uses the fair value model
measures an item of investment property using the
cost model, certain additional disclosures are
required
When an entity uses the cost model for investment
property, transfers between categories do not change
the carrying amount of the property transferred, and
they do mot change the cost of the property for
‘measurement or disclosure purposes,
‘Adlationat Disciosur
ss for the Cost Madet
Disposal the depreciation methods used
the useful lives or the depreciation rates used
+ the gross carrying amount and the accumulated
depreciation (aggregated with accurnulated
impairment losses) at the beginning and end of the
period
#2 reconciliation of the carrying amount of investment
property at the beginning and end of the period
showing , additions, disposals, depreciation,
impairment recognised or reversed, foreign
exchange differences, transfers to and from
Inventaries and owner-occupied property, and other
‘An investment property should be derecognized
disposal or when the investment property is, permanently
withdrawn from use and no future economic benefits are
expected from its disposal. The gain or loss on disposal
should be calculated as the difference between the net
disposat proceeds and the carrying amount of the asset
and should be recognized as income or expense in the
income statement. Compensation from third parties 1
recognized when it becomes receivable.
Disclosure
Both Fair Value Model and Cost Mode!
© whether the fair value or the cost model is used
«if the fair value model is used, whether property
Interests held under operating leases are classified
and accounted for as investment property
Page 6 of 6
Des
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changes.
+ the fair value of investment property. If the fair
value of an item of investment property caurict be
measured reliably, additional disclosures are
required, includifia, if possible, the range ot
estimates within which fair vatue is highly likely to lie
+ end of FAR.2608 - ©
FAR.2608
