HOMEWORK ON INVESTMENT PROPERTY

PROBLEM 1

On January 1, 2021, ERNST Co. finished constructing an edifice that will be accounted for as an
investment property using the cost model. Total construction cost was P35,000,000. The entity estimates
that the asset will be useful for 40 years. Continuing repairs on the building amount to P60,000 every
year, and annual real property tax to be paid by the company is P115,000.

Determine the following:

1. Annual expenses incurred by ERNST in relation to its investment property.

2. Carrying amount of the asset at the end of 2022.

PROBLEM 2

On January 1, 2022, DAMASCUS Corp.’s statement of financial position shows investment property at a
carrying amount of P10,000,000. The account has a historical cost of P8,000,000. The entity
appropriately accounts for its investment property using the fair value model.

At the end of 2022, the aggregate fair value of the assets of DAMASCUS classified as investment property
is P11,000,000. And at the end of 2022, total increases amounted to P3,550,000, while total decreases
were P2,750,000.

1. At what amount should the investment property be presented in DAMASCUS’ statement of

financial position at the end of 2023?
2. What is the gain or loss to be presented in the company’s profit or loss statement for the year
ended 2023?
3. What is the amount of revaluation surplus to be shown in the entity’s other comprehensive
income?

PROBLEM 3

On December 31, 2023, IVORY Inc.’s investment in real property has a carrying value of P10,000,000
accounted for under the fair value model, before considering market value adjustment. The fair market
value of the asset on December 31, 2023, is P6,800,000.

How much should be the gain or loss on changes in fair value?

PROBLEM 4

On January 1, 2023, HOWLS Co. acquired an investment property at a total cost of P25,000,000. At
December 31, 2023, the carrying value of the property in the company’s books is P30,000,000. On
December 31, 2023, HOWLS decided to use the property and immediately reclassified it as plant asset.

1. What would be the initial cost of the plant asset if it has a fair value of P2,000,000 at the date
of conversion?
2. What amount of revaluation surplus should HOWLS recognize at the time of conversion?

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PROBLEM 5

On January 1, 2023, MANN Corp. has an investment property that was carried at fair value with a carrying
amount of P15,500,000 (historical cost, P15,000,000). As of December 31, 2023, the fair market value
of the property is P16,000,000. On December 31, 2023, the fair market value of the property was
P18,000,000. On this date, MANN decided to reclassify/transfer the property to inventory.

On the date of the transfer, what amount should the inventory be valued?

PROBLEM 6

On January 2, 2020, KENNY Inc. made a test of impairment on one of the buildings carried as plant
asset. The test on impairment revealed a recoverable value of P12,000,000 on that building. The carrying
value of this building as of January 2, 2020, is P16,000,000 with a remaining useful life of 10 years.

On January 2, 2022, KENNY decided to convert this particular building into an investment property that
is to be carried at fair value. The cost of converting the building is insignificant but as a result of the
change in the usage, the fair market value of the building was reliably valued at P18,000,000.

1. What amount of realized revenue/impairment recovery should KENNY recognize in its profit
or loss statement on the date of the transfer?
2. What amount of unrealized gain/revaluation surplus should the company recognize in its
shareholders’ equity on the date of the transfer?

PROBLEM 7

On January 2, 2022, ERICK Co. acquired a tract of land that is to be sold in the ordinary conduct of
business. The purchase price of the property of P80,000,000 was paid in cash and total transaction costs
of P600,000 related to the acquisition of the property was also paid at a later date. The land was
subdivided into 2,000 lots (200 square meters for every lot) for an additional cost of P5,550,000. On
December 31, 2022, the market value of the lot was P1,500 per square meter.

As of December 31, 2023, only 20,000 square meters are still unsold and the market value of the lost
had increased to P1,665 per square meter. On this date, ERICK decided to transfer the remaining lots
into investment property that is to be carried under the fair value model. There was no additional cost
incurred on the change of intention on the property.

What amount of gain should ERICK Co. recognize as a result of the transfer?

Updated April 2024