Intermediate Accounting - Investment Property

Investment Property
Relevant
Relevant Standard
Standard
• PAS 40 – Investment Property

Definition
Definition of
of
Investment
Investment Property
Property
Property (land or building) held
• to earn rentals, or
• for capital appreciation, or
• Both
Rather than for:
• use in the production or supply of
goods or services or for administrative
purposes; or
• sale in the ordinary course of
business.
Partial Own Use
Can be separated:
Owner-occupied – PPE
Rented – Investment property
Cannot be separated:
Owner-occupied:
Insignificant – Investment property
Significant - PPE
Services
Insignificant (Ancillary )
(e.g. security and maintenance
services)
Classification - Investment property
Significant
(e.g. owner-managed hotel)
Classification - PPE
Intra-company Rentals
Separate FS of lessor
Classification - Investment property
Consolidated FS
Classification - PPE
Recognition
Investment property 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 entity, and
• the cost of the property can be
measured reliably.
Problem No. 1 and 2
Items Reported as
Investment Property
Problem No. 1
Land – LT capital apprec’n P 15M
Land - unknown future use 30M
Bldg - operating lease 75M
Vacant bldg – oprt’g lease 8M
Property const’d as IP 12M
Redev’d existing property as IP 24M
Bldg - operating lease (40%) 6M
Bldg - operating lease
(security and maintenance) 30M
Total investment properties P 200M
Answer is letter A
Problem No. 2
Land - unknown future use P 5M
Vacant bldg. - operating lease 20M
Hotel owned by Subsidiary
(security and maintenance) 50M
Total Investment Properties P 75M
Answer is letter A
Measurement
Initial recognition
Cost
Subsequent to initial recognition
• Cost model
• Fair value model

Fair value Model
Journal entry: property is remeasured at fair
Investment
value
Investment property P40,000
 Gains or losses arising from changes in fair
FV adjustment gain-IP (P/L) P40,000
value recognized in profit or loss
 Not depreciated
 Not tested for impairment
Answer No. 3 is letter A

Cost Model
 Same with PPE
 Cost less accumulated

depreciation and less
accumulated impairment losses
 Disclose fair value
Answer No. 4 is letter D

Problem
Problem No.
No. 5
5
Sales proceeds P290,000
Carrying amount, 1/1/15

(P220,000 x 37/40) (203,500)
Gain (loss) on disposal P 86,500
Answer is letter A
Problem No. 6 to 8
Transfers to or from
Investment Property
Transfers
Transfers to, or from, investment
property should only be made when
there is a change in use, evidenced
by:
• commencement of owner-occupation;
• commencement of development with
a view to sale;
• end of owner-occupation; or
• commencement of an operating lease
to another party.
Transfers – Cost Model
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 not change
the cost of the property for
measurement or disclosure purposes.
Therefore, NO gain or loss is recognized.

Problem
Problem No.
No. 6
6
Cost, 1/1/11 P50M
Less Accum. Dep, 12/31/15
(P50M x 5/25) 10M
CA, 12/31/15 P40M
Investment property P40M

Accumulated depreciation 10M
Building P50M
Answer is letter D
Transfers
Transfers –
– Fair
Fair Value
Value Model
Model
Recognition of Gain/Loss (FV – CA)

From I.P. to PPE – P/L
From I.P. to Inventory – P/L
Journal entries (FV=P120; CA=P100)
From Inventory to I.P. – P/L
Investment property P20
From
FV PPE
Journal to (FV=P120;
entry I.P.gain-IPCA=P100)
adjustment P20
Revaluation
Investment property increase
P120 – OCI (RS)
RevaluationP120
PPEInventory decrease
P100 – P/L (RL)
Investment property
FV adjustment gain-IP P120 20
Journal
Journal entries
entries –
– Transfer
Transfer of
of
Property
Property
Fair value A
A P2,300,000
Less CA, 7/1/15
CA, 1/1/15 P2,000,000
Depreciation
(P2M/20 x 6/12) ( 50,000) 1,950,000
Revaluation increase P 350,000
Building P 300,000
Accumulated depreciation 50,000
Revaluation surplus (OCI) P 350,000
Investment property P2,300,000

Building P2,300,000
Problem
Problem No.
No. 7
7
Property A:
Depreciation (P 50,000)
FV adjustment
(P2.34M – P2.3M) 40,000
Property B:
FV adjustment
(P1.65M – P1.5M) 150,000
Net amount in P/L - 2015 P 140,000
Answer is letter D
Journal
Journal entries
entries –
– Transfer
Transfer of
of
Property
Property
Fair value A
A P2,300,000
Less CA, 7/1/15
CA, 1/1/15 P2,000,000
Depreciation
(P2M/20 x 6/12) ( 50,000) 1,950,000
Revaluation increase P 350,000
Building P 300,000
Accumulated depreciation 50,000
Revaluation surplus (OCI) P 350,000
Investment property P2,300,000

Building P2,300,000
Answer No. 8 is letter B

Intermediate Accounting - Investment Property

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Investment Property

• PAS 40 – Investment Property

Subsequent to initial recognition

• Fair value model

 Not tested for impairment

Answer No. 3 is letter A

 Cost less accumulated

 Disclose fair value

Answer No. 4 is letter D

Sales proceeds P290,000

Carrying amount, 1/1/15

Gain (loss) on disposal P 86,500

Therefore, NO gain or loss is recognized.

Investment property P40M

Recognition of Gain/Loss (FV – CA)

Investment property P2,300,000

Investment property P2,300,000

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