11 Investment Property

Learning Outcomes

After reading this chapter,you should be able to:

(a) define and give examples ofinvestment property;

(b) measure investment property at initial recognition and subsequent to
acquisition;
(c) account for transfers to and from other classifications; and
(d) acquire proficiency and accuracy in answering theoretical questions and
solving problems relating to investment property.

Inves^ent Property Defined(PAS 40)

An investment property is property [land or a building or part of a building
or both) held (by the owner or by the lessee under a finance lease) to earn
rentals or for capital appreciation, or both.

These assets are not intended for use in the production or supply of goods
or services or for administrative purposes (property, plant and equipment)
or for sale in the ordinary course of business (inventories).

Examples ofInvestment Property

> land held for long-term capital appreciation

> land held for a currently undetermined future use
> building owned by the entity and leased out under one or more operating
leases
> building that is vacant but is held to be leased out under one or more
operating leases
> property that is being constructed or developed for future use as
investment property

Partial Own Use

A property may be partly held for use in operations and partly held to earn
rentals or for capital appreciation. The portion held for use in operations
shall be reported as property, plant and equipment while the portion held
to earn rentals or for capital appreciation is to be accounted for as
investment property. If it is not probable to apportion the property and
only an insignificant portion is held for use in operations, the entire
property is accounted as investment property.

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Ancillaiy Services • Transfer from investment property to property, plant, arid

equipment- Commencement ofowner occupation
Insignificant services
• Transfer from investment property to inventories
When a property owner provides ancillary services, such as cleaning, Commencement of development with a view to sale
maintenance, and security and stich services are insignificant to the
arrangement as whole,the property is an investment properly. • Transfer from property, plant, and equipment to investment
property-End ofowner occupation, ,
• Significant services
• Transfer from inventories or prdpeity, plant, and equipment
In other cases—for instance, a hotel—services can be significant, such as to investment property - Commencement of an operating
services jjrovided to guests. Some hotel management arranjgements lease to another party
render the owner merely a pjassive investor. Judgment must be used in
' determining whether tiie property satisfies the definition ofan investment Under the cost model, transfers between investment property, owner-
property. occupied property and inventories (lo not change the carrying amount of
the property transferred.

Initial Recognition Under the fair value model, the transfer in the new classification is also
made at fair valufe. On the date ofreclassificatiori,the property is adjusted
> 'Investment property shall be recognized as an asset when,and only when first to its fair value, with the chahge in fair value taken to profit or lo.ss.
• it is probable thatthe future ecbriomic benefits that are associated with However, when reclassificatioh is made from ovimer-occupied property to
the investment property will flow to the entity; and investment property and the fair value is greater than the previous canying
• the cost ofthe inVjBStment property can be measured reliably.
value,the difference is taken to equity(revaluation surplus]. When the fair
value is less than the previous cariying value,the difference is charged,to
> Investment property shall be measured initially at its cost. Transaction revaluation surplus,, if any, or charged to profit or loss, if there is no
costs, such as professional fees for legal services and transfer taxes revaluation surplus balance related to the asset at the time of
assumed by the buyer and are directly attributable to the acquisition form reclassification.
part ofits cost ,
Derecognition
Measurement After Initial Recognition
> Derecognized on disposal or when the investment property is permanently
> An entity may choose either the cost model or the fair value model when withdrawn from use and no future ecbnoniic benefits are expected from its
reporting ALL the investment property on the statement of financial disposal.
position. ! '

> Under the cost model, an investment property is measured at cost less Presentation on the Statement of Financial Posttion
accumulated depreciation and accumulated impairment losses. > Shown as a separate line item on the face of the statement of financial
> Under,the fair value model, an entity shall measure all of its investment position,as a noncurrent asset.
property at fair value and a gain or loss is recognized for the increase or
decrease in fair value in the period in which the change arises. Required Disclosures
> If ah enterprise opts to present its property interest held under operating An entity shall disclose:
lease as ihyestnient propeity, only the fair value model is allowed to
nieasure all its investment propeity. (a) whether it applies the fair value model or the cost model.
(b] if it applies the fair value model, whether^ and in what circumstances,
Transfers To and From Other Classlfiications property interest held under operating leases are classified and accounted
> Transfer to, or from, investment propeity shall be made when and only
for as investment property.
when there is a change in use,evidenced by one or more ofthe following
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(c) when classification is difficult,the criteria it uses to distinguish investment An entity that applies the cost model shall disclose:
property from owner-occupied property and from property held for sale in
the ordinary course of business. (a) the depreciation methods used;

(h) the useful lives or the depreciation rates used;

(d) the extent to which the fair value of investment property is based on a
valuation by an independent valuer who holds a recognized and relevant (c) the gross carrying amount and the accumulated depreciation (aggregated
professional qualification and has recent experience in the location and with accumulated impairment losses) at the beginning and end of the
category ofthe investment property being valued. Ifthere has been no such period;
valuation,that fact shall be disclosed.
(d) a reconciliation .of the carrying amount of investment property at the
(e) the amounts recognized in profit or loss for: beginning and end ofthe period,showing the following:
(i) rental income from investment property; (i) additions, disclosing separately those additions resulting from
fii) direct operating expenses (including repairs and maintenance) acquisitions and those resulting from subsequent expenditure
arising from investment property that generated rental income recognized as an asset;
during the year; . j . additions resulting from acquisitions through business
(ii)
(iii) direct operating expenses (including repairs and maintenance) combinations;
arising from investment property that did not generate rental (iii) assets classified a^ held for sale or included in a disposal groun
income during the period; and classified as held for sale and other disposals;
(iv) the cumulative change in fair value recognized in profit or loss on (iv) depreciation;
a sale of investment property from a pool of assets in which the (V) the net exchange differences arising on the translation of the
cost model is used into a pool in which the fair value model is used. financial statements into a different presentation currency and on
translation ofa foreign operation into the presentation currency f
(f) the existence and amounts ofrestrictions on the realizability ofinvestment the repo^ng entity;
property or the remittance ofincome and proceeds of disposa. (vi) transfers to and from inventories and owner-occupied property
(g) Contractual obligations to purchase, construct or develop investment (vii) other changes.
property or for repairs, maintenance or enhancements.
In additton, an entity that applies the fair value model shaU disclose a (e) the fair value ofinvestment property. When an entity cannot measure tVi
reconciliation between the carrying amounts of investment property at the beginning fair value ofthe investment property reliably,it shall disclose:
and end ofthe period,showing the following: (i) a description ofthe investment property;
(ii) an explanation of why fair value cannot be measured reliably*
fa) additions disclosing separately those additions resulting from acquisitions (iii) if possible,the range of estimates within which fair yaluf» io u*
and those resulting from subsequent expenditure recognized in th likely to lie. highly
carrying amount of an asset;

(b) additions resulting from acquisitions through business combinations;

(c) assets classified as held for sale or included in a disposal group classified as
held for sale and other disposals;

(d) net gains or losses from fair value adjustments;

(e) the net exchange differences arising oh the translation of the financial
statements into a different presentation currency, and on translation of a
foreign operation into the presentation currency ofthe reporting entity;
(Q transfers to and from inventories and owner-occupied property; and
(g) other changes.

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TRUE OR FALSE QUESTIONS
FINANCIAL ACCOUNTING THEORY QUESTIONS
•

1. If an entity elects to classify property held under an operating lease as

Which of the following would not be classified as Investment Property?
investment property, the only measurement basis available is the fair value
a. Land held for long-term capital appreciation rather than for short-term sale
model for all ofits investment property. '
in the ordinary course of business r •
b. Land held for currently undeterminable future use .
2. ; If,, on acquisition, it is not possible to determine fair value reliably on a
c. Land held for short-term sale in the ordinary course of business
continuing basis,then the investment property shall be measured using die cost d. Building owned by the entity (or held by the entity under a finance lease)
model under PAS 16 Property,Plant and Eiquipment untii disposal.
and leased out under one or more operating leases
It is possible for an entity to hold investment property, some of which is
An investment property shall be measured initially at
measured at fair value and some under the cost model.,
a. cost. . ,
b. cost less accumulated impairment losses. * '
Investment property includes those properties held by the owner or the lessee
c. depreciable cost less accumulated impairment losses.
under a finance lease for use in production or supply of goods.and services pr
d. fair value less accumulated impairment losses.
for administrative purposes.

5. In cases where the fair value model is not used,transfers between classifications The following are examples ofinvestment property,except
are made at the carrying value: the lower of cost and net realizable value if ai. land held for currently undetermined future use. ^'
inventories, or cost less accumulated depreciation arid impairment losses if b. property that is being constructed or devefoped for use as an investment
property.
property,plant; and equipment .
c. existing investment prope^ that is being redeveloped for continuing us
6. When a properly under construction; is completed and transferred to as investment prope^. ^ ®
; investment property to be carried at fair value,the remeasurement to fair value d. property occupied by the company officers.
is recognized in profit or loss.
4. Which of the following statements best describes "owner-occupied nrn
If it is not probable to apportion the property and only an insignificant portiori according to PAS 40/nvestmentProperty? perty
is held for use in operations,-^the entire property is accounted as investment a. Property held for sale in the ordinary course of business
properly. Precisely what is meant by "insignificant" is not defined and is left to> b. Property held for use in the production and supply of goods or servi
or
judgment. However,in other Standards,indications are that two percent(2%) for administrative purposes
may be ah applicable level. c. Property held to earn rentals
d. Property held for currently undetermined future use
If the fair value model is selected for land held for capital appreciation, after
initial recognition,the whole class of.investment property where that property Under PAS 40InvestmentProperiy,which ofthe following additional d"
belongs shall be measured at fair value. Buildings held for rental to others may must be made when an entity chooses the cost model as its accounti^^
he measured subsequently using the cost model. for investment property? ■ ' policy
a. The fair value of the property .
b. The present value ofthe property
9. A property that is being constructed or developed for future use as Investment . c. The value in use dfthe property
property should be initially classified as property, plant and equipment and d. The net realizable value dfthe property
reclassified to investment property upon completion.
What could be a valid reason for transfers from investment nr'
10. If an entity uses the fair value model, annual depreciation is computed and property, plant aiid equipment? ®Perty to
recognized in profit or loss. a. When there is change in use
b. Based on the accountant's discretion ■ < ''
c. When the entity adopts the fair value model
d. When there is a decrease in the fair value ofthe asset

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. Investment Property
An investment property is derecognized when
a. it is disposed to a third party. 13. When an item of asset is transferred to and from the classification investment
b. it is permanently withdrawn from use. property, carried using the cost model, the measurement basis at the date of
c. no future economic benefits are expected from its disposal. transfer is the
d. in all ofthese cases. a. original cost
b. fair market value.
Which ofthe following would be part ofthe cost ofinvestment property? c. carrying amount
a. Start-up costs d. recoverable amount
b. Start-up costs that are necessary to bring the property to the condition
necessary for it to be capable of operating in the manner intended by the 14. Which ofthe following is not a characteristic ofan investment property?
management a. A land and/or a building
c. Operating losses incurred before the investment property achieves the b. Held by an owner or a lessee under finance lease
planned level of occupancy c. Held to earn rentals or for capital appreciation
d. Abnormal amounts ofwasted material,labor or other resources incurred in d. Always accounted for using fhir value model
constructing or developing the property
15. Which ofthe following is true for property tjiat comprises a portion that is held
Which of the .following properties fall under the definition of investment to earn rentals or for capital appreciation and another portion that is held for
property and therefore within the scope ofPAS 40 InvestmentProperty? use in the production or supply of goods- or services or for administrative
a. Land held as future site of warehouse purposes?
b. Property occupied by an employee ofthe entity I. If the portions could not be determined separately, the property is owner
c. Property being constructed on behalf ofthird parties occupied property only if an insignificant portion is held for use in the
production or supply of goods or services or for administrative purposes.
d. A building owned by an entity and leased out under operating leases II. If the portions could be determined separately (or leased out separately
under a finance lease),an entity accounts for the portions separately.
10. When reclassification is'made from owner-occupied property to investment
property that will be carried at fair value,any excess of the fair value over the a. I only
carrying amount at the date oftransfer is b. II only
a. ignored.
c. Both I and 11
b. recognized as a gain on the income statement. d. Neither I nor II
c. credited to asset revaluation surplus.
d. recorded as a credit to a liability account
16. In case of property held under an operating lease and classified as investment
property,
11. A gain arising from a change in the fair value of an investment property for a. the entity has to account for the investment property under the cost model
which an entity has opted to use the fair value model is recognized in only.
a. profit or loss for the year. b. the entity has to use the fair value model only.
b. general reserve in the shareholders' equity. ^ c. thie entity has the choice between the cost model and the fair value model.
c. valuation reserve in the shareholders' equity. d. the entity needs only to disclose the fair value and can use the cost model.
d. none ofthe above.

17. Under the cost model,an investment property is carried on each reporting date
12. Which of the following would be appropriately classified as investment
at
property?
a. fair value.
a. Property held for future use as owner-occupied property
b. cost less accumulated depreciation.
b. Property held for future development and subsequent use as owner-
c. cost less accumulated impairment losses.
occupied property d. cost less accumulated depreciation and impairment losses.
c. Property occupied by employees
d. Property for rental purposes

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18. : A s^ubsidiaiy leases its office unitfrom its parent company. The parent company
PRACTICAL FINANCIAL ACCOUNTING
appropriately classifies this office unit as investment property in its statement
offinancial position. In the consolidated financial statements, how should this
office unit be classified?
The following properties are in the list of Admiral Company:
a. Property,Plant aiid Equipment
Warehouse that serves as storage of merchandise inventory - P300,000
b. Investment Property
c. Inventories Farm land with potential for rice planting in the future. Admiral is yet to
d. Eliminated and not presented. decide on the final puipose of the property whether for farming or for
sale to generate profit- PI,500,000
19. Investment property shall be measured at each reporting period using
a. the cost or fair value model
Land and building used as office building - P3,000,060
b. the cost or revaluation model . Office unit leased to a subsidiary- Pl,200,000
c. the fair value or revaluation model
d. fair value or OCI model
Machinery and equipment leased out by Admiral under an operating
lease - P500,000
20.' An entity thatselects the cost model shall measure all ofits investment property Construction in progress [building) to be leased out Once finished -
in accordance with PAS 16*s requirements for that model,except P7,500,000
a. those classified as held-for-sale in accordance with PFRS 5 Non-Cujrent
, Assets Heldfor Sale and Discontinued Operations. Land in Muntinlupa City silkiated beside a mall being constructed
b. those properties held for undetermined purpose. acquired for potential capital appreciation - P500,0()0
c. a hotel owned by the entity and for which ABC Inc. provides security Commercial units being constructed on behalf ofa client - P1,000,000
services for its guests'belongings.
d. a vacant building to be leased out under an operating lease. A condominium building with ten(10)units valued at P100,000 per unit,
half is occupied by the company as office of executives. while the
remaining units are being leased out to unrelated parties ^ P1,0P0,000
(1) How much is the totalinvestmentproperty to be classified and presented in the
statement offinancial position ofAdmiral Company?
a. P9.2 million
b. P9.7 million
c. PI1.2 million
. »
d. P11.7 million

(2) How much ofthe above properties are to be classified as property, plant and
equipment?
a. P3.8 million ^
b. P4.3 million
c. P4.8 million ^
d. P5.3 million

Mandarin Company has a mid-rise condoniinium building in Parafiaque City. The

building has 10 Units and was constructed for a total cost of P5,000,000. The
purpose of this condominium building is to serve as residence of its employees,
who work in Okada Hotel, which is also owned by Mandarin. The following
information IS available:

• 3 units - occupied by executives rent free '

• 2 units - occupied by middle managers and pay rent at below market rent
• 5 units - occupied by rank-and-file employees and pay market rate rent for
the units occupied
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(3) How much should be classified as investment property and owner-occupied, F. The Niagara Company owns three properties,which are classified as investment
respectively? properties according to PAS 40. Details ofthe properties are given below:
a. P5.0 million and PO Initial Cost FV at 12/31/20 FV at 12/31/21
b. P1.5 million and P3.5 million Property(1) P250,000 P220,000 P240,000
c. P2.5 million and P2.5 million Property(2) 355,000 305,000 288,000
d. PO and P5.0 million Property(3) 350,000 375,000 365,000
Each property was acquired in 2017 with a useful life of10 years. The compan5r's .
C. Peninsula Enterprise owns the properties Iselow, which it leases out(operating accounting policy is to use the fair value model for investment properties.
lease)to the following:
(7) What is the gain (loss) recognized in profit or lossfor the year 2021?
Asset Cost Renter a. P62,000 loss
Building- P500,000 Subsidiary b. P27,000loss
Machinery 350,000 Subsidiary c. P20,000gain
Condominium Unit 700,000 Employees d. P7,000 loss
Land 800,000 Associate

(4) In-Peninsula's consolidated statement offinancial position, how much would G. DEF Company owns land and building being used for its operations and
be presented as investment property? administrative functions. The land and building are carried in its books using the
a. P800,000 cost model and have the following data at January 1,2021.
b. PI,300,000 Land Bnilding
c. P2,000,000 Cost 10,000,000 20,000,000
d. P2,350,000 Accumulated depreciation 13,500,000
Fair value 14,000,000 9,000,000.

A building previously occupiied by Grand Company with a cost of PIO million and On this date, the company vacated the old building and occupied a newly
an accumulated depreciation of P5.5 .million is reclassified as investment constructed one located in the commercial area of the Central Business District.
property. At the time of reclassification, the building has a fair value of P5 The old building is then reclassified as investment property using the fair value
million. model. The company uses fair value model in all ofits other investment property.

(5) Using the fair value model, upon reclassification to investment property, at (8) What is the amount offair value gain reported in profit or loss resultingfrom
what amountshould Grand record the investment property and what amount the reclassificationfrom owner occupied to investmentproperty due to change
Pfgoin is recognized in profit or loss, respectively? in use ofthe property?
a. PO
O' P4.5 million and P500,000
b. PS million and PO b. P2,S00,000
c. PS million and P500,000 c. P4,000,000
d. P4.S million and PO d. P6,500,000
\

H. The Lancer Company has a single investment property,which had original cost of
E. Micro Company acquired a building on January 1, 2021 for P270,000. At that P580,000 on January 1,2018. At December 31,2020,its fair value was P600,000
date, the building had a useful life of 15 years. At;December 31, 2021,the fair and at December 31, 2021, it had a fair value of P590,000. On acquisition, the
value ofthe building was P360,000. The building was classified as an investment property had a useful life of40 years.
property and accounted for under the cost model.
(9) According to PAS 40 Investment Property, what should be the expense
(0) According to PAS 40 Investment Property, what amounts should be carried in recognized in Lancer's profit or lossfor the year ending December 31, 2021
the statementoffinancial position and recognized in profit or loss? under each ofthefair value model and the cost model?
Carrying amountin the Recognized Fair value model Cost model
Statem^ntoffmancial position in profit or loss a. P14,750 P14,500
a. P360,000 No gain/loss b. P10,000 P14,500
b. P270,000 No gain/loss c. P14,500 P10,000
c. P360,000 Gain ofP108,000 d. P10,000 P14,750
d. P2S2,000 Expense ofP18,000

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1. Safe Ladies' Home,Inc. owns a three-storey building along Asturias. The whole
building, divided into smaller rooms, is being rented out to various lady bed 12 Intangible Assets
spacers comprising of students, reviewees and employees. The building cost is
PS,000,000 with accumulated depreciation of Pl,500,000 as of December 31,
2021. On this date,;the building has a fair value of PS,500,000. *> Learning Outcomes

A new building was constructed by another entity adjacent to the building ofSafe After reading this chapter, you should be able to:
Ladies' Home,Inc. during 2021. Safe Ladies'Home rented the fourth floor of the
new building under operating lease'ahd subleased the whole area to various bed (a) understand the nature ofintangible assets;
spacers. At December 31, 2021,the fair value of this fourth floor is P2,000,000 Cb) account for acquisition and amortization ofintangible assets;
and Safe Ladies' Home chose to report it as an investment property. (c) determine the appropriate presentation ofintangible assets in the statement of
financial position;
(10)At whattotal amountshould Safe Ladies'Home reportits investment property (d) account for subsequ^t expenditures oh intangible assets; and
at December31,2021? (e) acquire proficiency andv accuracy in answering theoretical questions and
a. PO solving problems relating to intangible assets.
b. P3,500,000
c. PS,500,000
<* Definition and Nature
d. P7,5Q0,000 ;
> Identifiable non-monetary asset without physical substance
J. Iron Company has the following property items at December 31,2021:
> Elements ofan intangible asset '
Acquisition
Cost/ Fair value at
• Identifiable - separable; capable of being separated or divided from the
entity; capable of being sold,transferred,licensed,rented or exchanged.
Carrying value 12/31/21
Land which at the date of acquisition is not • Controlled by the enterprise - the entity has the power to obtain the future
intended for any specific use in the economic benefits from the asset and restricts the access of others to those
future ' , P1,000,000 Pl,800,000 benefits.
Land held for future plant site 2,000,000 2,600,000
Building in process of construction • Expected future economic benefits - this may arise from the sale of
intended to be leased under operating products or services, cost savings or 6ther benefits resulting from the use
leases. 8,000,000 8,000,000 ofthe asset by the entity.
Building being used by the entity for its • Has cost that can be measured reliably
operations 2,500,000 3,000,000
Equipment bein^ leased under operating > Examples ofintangible assets
leases 1,500,000 1,050,000
Land and building acquired under finance • Patents and copyrights
leases being Used by the entity as its • Franchises and trademarks
general & administrative headquarter 9,2P0,000 9:900,000 • Computer software ^
Building(3p% ofthe space is used in ;, • Motion picture films "
operations and the remainder is being • Customer lists
leased to others under operating • Customer or supplier relationship ^
leases) , 12,500,000 18,000,000 Customer loyalty
(11)Assuming thatthecompady adopted the PAS40InvestmentProperty using the Mortgage servicing rights
fair value model, what is the correct total ofthe investment property reported Fishing licenses '
at December31,2021? Import quotas ; "
a. P9,800,000 Market share
b. P22,400,000 Marketing rights
c. P23,450,000
d. P27,800,000

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