Question
1. Spongebob Company has the following property items on December 31, 2021: Land held not intended for any specific use in the future P3,000,000 Land
1. Spongebob Company has the following property items on December 31, 2021:
Land held not intended for any specific use in the future P3,000,000
Land held for future plant site 2,000,000
Building being leased out under finance lease 2,500,000
Equipment being leased out under operating lease 1,000,000
Condominium building that is being constructed
intended for sale in the ordinary course of business 4,500,000
Building being used for administrative purposes 5,000,000
Hotel building for which significant services are provided to the guests 6,500,000
How much should be classified as investment properties on December 31, 2021?
a. 5,000,000 c. 9,500,000
b. 4,000,000 d. 10,500,000
2. On January 2, 2021, Patrick Company has an investment property acquired at cost of P3,000,000 including
directly attributable transaction cost of P 100,000. Estimated useful life of the property is 20 years using a
straight-line method. On December 31, 2021, the fair value of the property is P3,200,000. Estimated cost to sell
is P50,000.
Q1: What should be the carrying value of the investment at the end of 2021 using the cost model?
a. 2,755,000 c. 2,650,000
b. 3,150,000 d. 3,200,000
Q2: How much is the carrying value of the investment at the end of 2021 using the fair value model?
a. 2,755,000 c. 2,850,000
b. 3,150,000 d. 3,100,000
3. On July 1, 2021, Mr. Krabs Company purchases an investment property at a cost of P50,000,000 including
transaction costs for a total amount of P500,000. On October 1, 2021, the fair value of the property increases
to P51,000,000. At December 31, 2021, the fair value of the property is P 48,000,000. The rental income
received per quarter is P1,500,000. The property has a useful life of 50 years.
Q1: If the company uses the cost model, what is the net effect on the profit or loss for the six months ended
December 31, 2021 in relation to the investment property?
a. (P500,000) c. 1,500,000
b. P1,200,000 d. 2,000,000
Q2: If the company uses the fair value model, what is the net effect on the profit or loss for the six months
ended December 31, 2021 in relation to the investment property?
a. 1,200,000 c. 2,000,000
b. 1,500,000 d. 3,500,000
4. On January 1, 2019, Squidward Company which uses the fair value model, purchases an investment property
at a cost of P50,000,000. At December 31, 2019 the fair value of the property is P60,000,000. The fair value
of the property on December 31, 2020 is P55,000,000. On January 1, 2021, the property was reclassified to
property, plant and equipment. At what amount should the property, plant and equipment be initially
recorded?
a. zero c. 55,000,000
b. 50,000,000 d. 60,000,000
5. Gary Company has a building with a carrying value of P2,400,000 as of May 31, 2020. On June 1, 2020, the
company decided to convert the plant asset to investment property to be carried at Fair Value.
Q1: If the fair value of the building at date of conversion is P2,600,000. The conversion would result to a
recognition of
a. 200,000 gain to Profit or Loss c. 2,400,000 Investment Property
b. 200,000 revaluation surplus to OCI d. 2,600,000 Building
Q2: If the fair value of the building at date of conversion is P2,200,000. The conversion would result to a
recognition of
a. 200,000 loss to Profit or Loss c. 2,400,000 Investment Property
b. 200,000 loss to OCI d. 2,200,000 Building
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started