Exercise 1 - Investment property Journal entries 

On January 1, 2020, Saitama Investment Corp acquired the following investments for cash:

Land P7,500,000

Building P9,000,000

Saitama spent P400,000 for repainting of the building and minor repair before the building can commence its primary purpose of renting out to tenants. The building has an expected useful life of 10 years.

An expert provided the following fair values of the building:

December 31, 2020 P8,000,000

December 31, 2021 P7,500,000

Saitama paid broker's fees of P200,000 for the acquisition of the parcel of land. Clearing costs of P20,000 were incurred in creating an access route for the land and uprooting unwanted shrubs and trees. The land is to be held for capital appreciation.

The land had the following appraised values:

December 31, 2020 P8,500,000

December 31, 2021 P9,500,000

Prepare the journal entries for 2020 & 2021 if Saitama accounts for the properties under:

1. Fair value model
2. Cost model

Exercise 2 - Investment property using cost & fair value model. 

On January 1, 2016, Genos Company owned an investment property which had an original cost of P5, 800,000 and useful life of 40 years. On December 31, 2018, the fair value was P6,000,000 and on December 31, 2019, the fair value was P 5,900,000

Required:

1. Under the fair value model, what is the gain or loss to be presented in the income

statement for the year ended December 31, 2019?

2. Under the cost model, what is the expense to be presented in the income statement for

the year ended December 31, 2019?

Exercise 3 - Investment property transfer 

Vongola, Inc., a real state company, has a property included in its inventory with a cost of P10,000,000 and net realizable value of P8,000,000 on December 31, 2019. Because of the decline in the real state industry, the company decided to lease out the property to a tenant under an operating lease in 2020 when the fair value of the property was P7,000,000.

Required:

1. If the company will use the cost model to measure the investment property, how much should be recognized in the 2020 income statement as a result of the transfer from inventory to investment property?
2. f the company will use the fair value model to measure the investment property, how much should be recognized in the 2020 income statement as a result of the transfer from inventory to investment property?

Exercise 4 - Investment property transfers 

Daehan, Inc. owns a building purchased on January 1, 2016 for P100 million. The building was used as the company's head office. The building has an estimated useful life of 25 years. In 2020, the company transferred its head office and decided to lease out the old building. Tenants began occupying the old building by the end of 2020. On December 31, 2020, the company reclassified the building as investment property to be carried at fair value. The fair value on the date of reclassification was P70 million.

Required:

What amount of gain or loss will be presented in the 2020 profit or loss as a result of the transfer from owner-occupied to investment property?

Exercise 5 - Investment property transfers 

On January 1, 2020, Hedchala Corp. owns a mall held for rentals to small businesses. The mall is being carried at its current fair value of P35,000,000. The mall has a remaining useful life of 20 years with no residual value.

Required: Prepare the journal entries in 2020 under the following assumptions.

1. During the year the board of directors decided to cease operating the mall and hold it for

immediate sale.

2. During the year the board of directors decided to cease operating the mall and commenced

owner-occupation.

Exercise 6 - Investment property transfers 

On January 1, 2020, Dubious Corp. owns a building developed with a view to sale. The commercial complex has a cost of P25,000,000. The building has been on real property sales listing on different markets for three years now that Dubious is starting to doubt the sale ability of the property. In order to minimize the losses that Dubious will incur an operating lease was signed to another party for five years. Dubious will be earning rent from the property from the time of occupation on January 1, 2020. The commercial building has a fair value of P23,500,000 and a remaining life of 15 years at that time.

Required:

Prepare the journal entries to record the transfer of the building to investment property under:

1. Cost Model

2. Fair Value model

^-^ Thank you!!