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    FAR 15 Investment Property

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    FAR 15 Investment Property

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    FAR 15 Investment Property

    Uploaded by

    Rockheart 18

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    of 3

    FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA.

    FAR 15: INVESTMENT PROPERTY

    MULTIPLE CHOICE THEORIES:

    1. Which of the following is an investment property?


    a. Property being constructed or developed on behalf of third party
    b. Property that is being constructed and developed as investment property
    c. Property held for future development and subsequent use as owner-occupied property
    d. Land or Building awaiting disposal

    2. Which statement is true if the property is partly investment and partly owner-occupied?
    I. If the investment and owner-occupied portions could be sold or leased out separately, the portions shall be
    accounted for separately as investment property and owner-occupied property.
    II. If the investment and owner-occupied portions could not be sold or leased out separately, the property is
    investment property if only an insignificant portion is held for manufacturing or administrative purposes.

    a. I only c. Both I and II


    b. II only d. Neither I nor II

    3. If an entity owns and manages a hotel, services provided to guests are a significant component of the arrangement
    as a whole. In such a case, the hotel is classified as
    a. Investment property
    b. Owner-occupied property
    c. Partly investment property and partly owner-occupied property
    d. Neither investment property nor partly owner-occupied property

    4. Regarding proper measurement of investment properties, which of the following is false?


    a. A building classified as investment property is not depreciated if the entity uses the fair value model.
    b. When a property interest held by a lessee under an operating lease is classified as an investment property, the
    fair value model only shall be applied.
    c. Impairment losses are applicable to both cost model and fair value model in accounting for investment property.
    d. If an investment property through exchange with no commercial substance, there is no gain or loss on exchange
    to be reported in the current year statement of profit or loss.

    5. Which statement is true concerning property leased to an affiliate?


    I. From the perspective of the individual entity that owns it, the property leased to an affiliate is considered an
    investment property.
    II. From the perspective of the affiliates as a group for purposes of consolidated financial statements, the property
    is treated as owner-occupied property.

    a. Both I and II c. I only


    b. Neither I nor II d. II only

    6. For a transfer from investment property carried at fair value to owner-occupied property or inventories, the
    property’s deemed cost from subsequent accounting shall be
    a. The fair value at the date of change in use
    b. The cost
    c. The book value at the date of change in use
    d. The depreciated replacement cost at the date of change in use

    7. If owner-occupied property is transferred to investment property that is to be carried at fair value, the difference
    between the carrying amount of the property and the fair value shall be
    a. Included in profit or loss
    b. Included in retained earnings
    c. Included in equity
    d. Accounted for as revaluation of property, plant and equipment

    FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 1


    8. If an inventory is transferred to investment property that is to be carried at fair value, the remeasurement to fair
    value is
    a. Included in profit or loss
    b. Included in equity
    c. Included in retained earnings
    d. Accounted for as revaluation of inventory

    MULTIPLE CHOICE PROBLEMS:

    1. TWISTA CORPORATION and its subsidiaries own the following assets as of December 31, 2023:

    Equipment leased out under operating lease 100,000


    Building occupied by its employee paying a market rent 350,000
    Building rented out under operating lease
    (the company provides significant ancillary services to its tenants) 250,000
    Building with 10 floors (first 7 floors are rented out under operating lease
    while the remaining floors used as office space) 500,000
    Land which at the date of acquisition is not intended for any specific use in
    the future 300,000
    Building leased out to unrelated parties under finance lease 400,000
    Land rented out to MANIA CO (a subsidiary) 150,000
    Equipment rented out to MEGALO INC. (a subsidiary) 50,000
    Four-star hotel owned and managed by the company 550,000
    Building under construction intended to be leased under operating lease 450,000
    Right of use building leased out to an unrelated party under operating lease 600,000

    The above assets are properly measured. The portions of the ten-floor building can be rented out separately.

    What amount will be reported as investment property in the separate statement of financial position?
    a. P1,550,000 c. P2,100,000
    b. P1,700,000 d. P1,850,000

    What amount will be reported as investment property in the consolidated statement of financial position?
    a. P1,550,000 c. P2,100,000
    b. P1,700,000 d. P1,850,000

    2. On July 1, 2023, HOMELESS CORP. acquired a building at P5,000,000, including transaction costs and immediately
    rented it out under operating lease at an amount of P450,000 per quarter. The estimated useful life of the building
    was 10 years with a residual value of 10% and if to be depreciated, the company policy requires the use of the
    straight-line method.

    On October 31, 2023, the fair value of the building increased to P5,100,000. On December 31, 2023, the building
    has a fair value of P4,650,000 with an estimated cost to sell of P50,000.

    If the company uses the cost model, what is the net effect on the profit or loss ended December 31, 2023 in relation
    to the investment property?
    a. P500,000 net income c. P750,000 net income
    b. P550,000 net income d. P50,000 net income

    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, 2023 in relation to the investment property?
    a. P500,000 net income c. P750,000 net income
    b. P550,000 net income d. P50,000 net income

    3. STRANDED COMPANY, a real estate entity had a building with a carrying amount of P20,000 on December 31, 2023.
    The building was used as offices of the entity’s administrative staff.

    On December 31, 2023, the entity intended to rent out the building to independent third parties. The staff will be
    moved to a new building purchased early in 2023. On December 31, 2023, the original building had a fair value of
    P35,000,000.

    FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 2


    On December 31, 2023, the entity also had land that was held for sale in the ordinary course of the business. The
    land had a carrying amount of P10,000,000 and fair value of P15,000,000 on December 31, 2023. On such date, the
    entity decided to hold the land for capital appreciation.

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

    On December 31, 2023, what amount should be recognized in revaluation surplus as a result of transfer of building
    to investment property?
    a. P20,000,000 c. P15,000,000
    b. P35,000,000 d. P -0-

    On December 31, 2023, what amount should be recognized in profit or loss as a result of transfer of the land to
    investment property?
    a. P15,000,000 c. P5,000,000
    b. P10,000,000 d. P -0-

    -END OF HANDOUTS-

    FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 3

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