PAS 40 — INVESTMENT PROPERTY

1. SINAG Company and its subsidiaries own the following properties at year-end:

Land held for long-term capital appreciation ₱ 3,500,000

Land held for a currently undetermined future use 5,700,000

Building included in inventory 16,600,000

Land held for long-term speculation 1,400,000

Equipment leased out under operating lease 500,000

Building rented out under finance lease 10,900,000

Land owned by the entity and leased out under an operating lease 7,800,000

Building owned by the entity and leased out under an operating lease 11,800,000

Land held for future plant site 5,600,000

Building that is currently vacant but is held to be leased out under various 7,100,000
operating leases
Building being constructed on behalf of third parties 11,100,000

Warehouse that is currently being developed to be used as investment 9,700,000

property
Land held for sale in the ordinary course of business 100,000

Building held under an operating lease 1,100,000

Building under finance lease and rented out under operating lease 1,200,000

Building awaiting disposal 100,000

Building under construction to be used as office 400,000

Property held by a subsidiary of SINAG, a real estate firm, in the ordinary 2,000,000
course of business
Property held by SINAG for use in production 4,000,000

Building owned by a subsidiary of SINAG and for which the subsidiary 1,500,000
provides security and maintenance services to the lessees
Land leased by SINAG to a subsidiary under an operating lease 2,500,000

Land held for future factory site 3,500,000

Machinery leased out by SINAG to an unrelated party under an operating 1,000,000

lease
What is the total investment property that should be reported in the consolidated statement
of financial position of the parent and its subsidiaries?

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EXEMPLARS Company acquired a building on January 1, 2020 for P18,000,000. At that date,
the building had a useful life of 40 years. The fair value of the building was P20,000,000 at
December 31, 2020. The building was appropriately classified as investment property. What
amount should be carried in the statement of financial position at December 31, 2020 and
recognized in profit or loss for the year ended, respectively?

2. Under the Cost Model

3. Under the Fair Value Model

WONDERFUL Company, a real estate entity, had a building with a carrying amount of
P20,000,000 on December 31, 2019. The building was used as offices of the entity’s
administrative staff.

On December 31, 2019, the entity intended to rent out the building to independent third
parties. The staff will be moved to a new building purchased early in 2019.

On December 31, 2019, the original building had a fair value of P35,000,000.

On December 31, 2019, the entity also had land that was held for sale in the ordinary course of
business.

The land had a carrying amount of P10,000,000 and fair value of P15,000,000 on December
31, 2019.

On such date, the entity decided to hold the land for capital appreciation.

The accounting policy is to carry all investment property at fair value.

4. On December 31, 2019, what amount should be recognized in revaluation surplus?

5. On December 31, 2019, what amount should be recognized in profit or loss?

6. A building previously occupied by HOTDOG Company with a cost of P10,000,000 and an

accumulated depreciation of P5,500,000 is reclassified as investment property. At the time
of reclassification, the building has a fair value of P5,000,000.

Using the fair value model, upon reclassification to investment property, at what amount
should HOTDOG record the investment property and what amount of gain is recognized in
profit or loss, respectively?

7. On December 31, 2019, AAA Company’s investment in real property has a carrying value of
P3,600,000 under the fair value model, before considering market value adjustment. If the
fair market value at December 31, 2019 is P3,000,000, how much should be the gain or
loss on transfer if AAA would shift to cost model?

8. WALWAL, Inc. owns land and building in Hernani used for operations and administration.
The company uses the cost model and provides you with the following information on
January 1, 2020:

Land Cost P 20,000,000

Fair Value 28,000,000

Building Cost P 40,000,000

Accumulated Depreciation 10,000,000

Fair Value 35,000,000

On this date, the company transferred its business operations to Tacloban and leased out
the land and building above to interested business friends under operating leases. The
company uses the fair value model for all of its investment property. How much gain shall
be reported in profit or loss resulting from this reclassification from owner-occupied
property to investment property?

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9. JILMERAINE Co. has a 10-storey condominium building with a carrying amount of
P4,000,000. The first 4 floors are being rented out to tenants under operating lease and the
rest are used as office space. Each portion of the building can be sold separately or leased
out separately under finance lease.

Assuming that the fair values of the condominium units are approximately equal, how much
is classified as investment property?

10. CYVEEL Co. has an investment property acquired 4 years ago at a total cost of P1,000,000.
The investment property is measured under cost model and depreciated using the straight-
line method over an estimated useful life of 10 years with no residual value. The current fair
value of the property is P400,000, equal to recoverable amount.

If CYVEEL Co. decides to transfer the investment property to owner-occupied property, the
transfer will most likely result to the reporting of which of the following in CYVEEL’s
statement of profit or loss?

Answer Key:
1. 49,700,000

2. 17,550,000 and 450,000 expense

3. 20,000,000 and 2,000,000 gain

4. 15,000,000

5. 5,000,000

6. 5,000,000 and 0

7. 0

8. 0

9. 1,600,000

10. 200,000 impairment loss

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