ACTIVITY 2

Standard: IAS 40-Investment Property

Theories:

1. An investment property is a property held by an entity

a. To earn rentals and/or for capital appreciation.
b. For use in the production and supply of goods or services or for administrative purposes.
c. For sale in the ordinary course of business.
d. None of the foregoing.

2. Which of the following may be classified as investment property?

I. Building
II. Equipment
III. Machinery
IV. Land

a. I and IV only
b. II and III only
c. I, II and III only
d. I, II, III and IV

3. Which of the following would qualify as investment property in accordance with IAS 40
Investment Property?
I. Land held for capital appreciation
II. Land held for undetermined use
III. Land held for sale in the ordinary course of business
IV. Building held earn rentals
V. Equipment held to earn rentals

a. I, IV and V
b. I, II and IV
c. I, II, IV, V
d. I, II and V

4. An owner-occupied property held by an entity

a. To earn rentals and/or capital appreciation.
b. For use in the production and supply of goods or services of for administrative purposes.
c. For sale in the ordinary course of business
d. None of the foregoing.

5. Which of the following would qualify as investment property in accordance with IAS 40
investment property?
I. Building leased out under finance lease
II. Properties occupied by employees. The employees pay rent on the occupied properties.
III. Properties occupied by employees. The employees do not pay rent on the occupied
properties.
IV. Building owned by an entity for which the entity provides security and maintenance
services to the occupants.
 V. Building owned by an entity for which significant ancillary services are provided to
occupants.

a. I, II, IV and V
b. I, II and IV
c. II, IV and IV
d. IV only.

6. Which of the following would qualify to be reported as investment property in the consolidated
financial statements of a parent and its subsidiaries?
I. Property leased out by a parent to a subsidiary under an operating lease. This property
is being used by the subsidiary in its operation.
II. Property leased out by a parent to a subsidiary under finance lease. This property is
being use by the subsidiary in its operation.
III. Property leased out by a parent to a subsidiary under finance lease. This property is
being leased out by a parent to a subsidiary under operating lease.
IV. Property leased out by a parent to a third party under finance lease.
V. Property leased out by a parent to a third party under operating lease.
VI. Property held under a finance lease from a subsidiary and being used in the parent’s
operations.
VII. Property held under a finance lease from a subsidiary and being leased out to a third
party under operating lease.

a. I, V and VII
b. III, V and VII
c. II, III, IV and VII
d. I, II, III, IV, V and VII

7. Which statement is/are true concerning property leased to an affiliate?

I. From the perspective of the individual entity that owns the property, it is considered an
investment property.
II. From the perspective of the individual entity that owns the property, it is considered an
owner-occupied property.
III. From the perspective of the group and for purposes of consolidated financial
statements, the property is classified as owner-occupied property.
IV. From the perspective of the group and for purposes of consolidated financial
statements, the property is classified as investment property.

a. I and III
b. I and IV
c. II and III
d. II and IV

8. An investment property is initially measured at its

a. Cost
b. Fair value
c. Fair value less cost to sell
d. Carrying value in the books of previous owner

9. Directly attributable costs related to investment property include

 a. Professional fees for legal services, property transfer taxes and other transaction costs
directly attributable to the acquisition
b. Start-up costs
c. Initial operating losses
d. Abnormal amounts of wasted material, labor or other resources incurred in constructing or
developing the property.

10. The investment property shall be subsequently measured using the

I. Cost model
II. Fair value model
III. Revaluation model

a. I only
b. II only
c. I or II
d. I or III

11. If the entity uses the cost model for the investment property, which of the following statements
are true?
I. The investment property is initially measured at cost.
II. The investment property is initially measured at fair value
III. The investment property is carried at cost less any accumulated depreciation and
accumulated impairment losses.
IV. The investment property is carried at its fair value every year-end.
V. The investment property is depreciated.
VI. The investment property is not depreciated
VII. Any changes in the fair value of the investment property are not recognized
VIII. Any changes in the fair value of the investment property from year-to-year shall be
recognized in profit or loss
IX. Any changes in fair value of the investment property from year-to-year shall be
recognized in other comprehensive income.

a. I, III, V and IX
b. I, III, VI, and VII
c. I, III, VI, VII
d. I, III, VI, and IX

12. If the entity uses the fair value model for the investment property, which of the following
statements are true?
I. The investment property is initially measured at cost.
II. The investment property is initially measured at fair value
III. The investment property is carried at cost less any accumulated depreciation and
accumulated impairment losses.
IV. The investment property is carried at its fair value every year-end.
V. The investment property is depreciated.
VI. The investment property is not depreciated
VII. Any changes in the fair value of the investment property are not recognized
VIII. Any changes in the fair value of the investment property from year-to-year shall be
recognized in profit or loss
 IX. Any changes in fair value of the investment property from year-to-year shall be
recognized in other comprehensive income.

a. I, IV, V, and IX
b. I, IV, VI, and VIII
c. II, IV, VI and VIII
d. II, IV, V, and IX

13. Transfer to or from investment property are appropriate

a. Based on the discretion of management
b. When there is change in use
c. When there is a change in management’s intentions for the use of a property
d. An entity can never transfer property into another classification once classified as
investment property

14. An entity uses the cost model. Transfer between investment property, owner-occupied
property, and inventory shall be made at
a. Cost
b. Replacement cost
c. Carrying amount
d. Fair value

15. If an investment property carried at fair value is transferred to owner-occupied property, the
difference between the carrying amount of the property and the fair value shall
a. Be recognized in profit or loss
b. Be recognized in other comprehensive income
c. Be accounted for as revaluation of PPE in accordance with IAS 16 PPE.
d. Not be recognized

16. In an 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
a. Be recognized in profit or loss
b. Be recognized in other comprehensive income
c. Be accounted for as revaluation of PPE in accordance with IAS 16 PPE.
d. Not be recognized

17. If an investment property carried at fair value is transferred to inventory, the difference
between the fair value and the carrying value is
a. Be recognized in profit or loss
b. Be recognized in other comprehensive income
c. Not be recognized
d. Deferred

18. If an inventory is transferred to investment property that is to be carried at fair value, the
difference between the fair value and the carrying value is
a. Be recognized in profit or loss
b. Be recognized in other comprehensive income
c. Not be recognized
d. Deferred
19. When is an investment property allowed to be derecognized in accordance with IAS 40
investment property?
a. Upon its ultimate disposal
b. When the investment property is permanently withdrawn from use
c. When no future economic benefits are expected from its use and disposal
d. All of these

20. Investment property is presented under what section of the statement of financial position?
a. Current asset
b. Noncurrent asset
c. Current liability
d. Noncurrent liability

Problem 1: Classification of Properties

Thomas Co., a real estate entity, provides the following information on December 31, 2022:
1 Land held for long-term capital appreciation P100,000
2 Land held for sale in the ordinary course of business 200,000
3 Land held for undetermined use 300,000
4 Land held for future factory site 400,000
5 building held for administrative use 500,000
6 Building leased out under operating lease 600,000
7 Building leased out under finance lease 700,000
8 A building that is held for dual use; 30% is owner
Occupied and remaining is to earn rentals 800,000
9 Building owned by Thomas Co. for which the entity
Provides security and maintenance services to occupants 900,000
10 Building owned by Thomas Co. for which significant ancillary
Services are provided to occupants 1,000,000
11 Building held under a finance lease and leased out under
An operating lease 1,100,000
12 Vacant building held to be leased out under an operating lease 1,200,000
13 Building in another location leased out under finance lease 1,300,000
14 Property being constructed for future use as investment
Property 1,400,000
15 Property being constructed for sale in the ordinary course
Of business 1,500,000
16 Property held for future use as owner-occupied property 1,600,000
17 Property held for use in production 1,700,000
18 Properties occupied by employees. The employees pays
Rent on the property they occupied 1,800,000
19 A property occupied by employees who do not pay rent on
The property they occupied 1,900,000
20 Equipment leased to an external party under an operating lease 2,000,000

1. What total amount should be considered as investment property?

2. What total amount should be considered as owner-occupied property on December 31,
2022?
3. What total amount should be considered as inventory?
Problem 2: Classification of Properties

Jensen Co. and its subsidiaries provides the following information pertaining to their properties at
December 31, 2022:

1 Property held by Jensen Co. for capital appreciation P500,000

2 Building that is leased out by Jensen Co. to a third party under
Operating lease 550,000
3 Building that is lease out by Jensen Co. to a third party under
Finance lease 600,000
4 Property leased out by Jensen Co. to a subsidiary under an operating
Lease. This property is being used by the subsidiary in its operations 650,000
5 Property leased out by Jensen Co. to a subsidiary under a finance lease.
This property is being used by the subsidiary in its operations. 700,000
6 Property leased out by Jensen Co. to a subsidiary under finance lease.
This property is being leased out by the subsidiary under an operating
Lease 750,000
7 Property leased out by Jensen Co. to a third party under an operating
Lease 800,000
8 Property leased out by Jensen Co. to a third party under finance lease850,000
9 Property held by a subsidiary of Jensen Co., a real estate entity,
Intended for sale in the ordinary course of business 900,000
10 Building held by a subsidiary of Jensen Co. for use in production 950,000
11 Property held by a subsidiary of Jensen Co., a real estate entity, leased
Out under an operating lease 1,000,000
12 A building held by Jensen Co. under a finance lease and leased out
To a third party under an operating lease 1,100,000
13 A building held by Jensen Co. under a finance lease and leased out
To a subsidiary under an operating lease. This building is being used
By the subsidiary in its operations. 1,200,000
14 A building held by Jensen Co. under a finance lease from one of its
Subsidiary and being used in operations 1,300,000
15 A building held by Jensen Co. under a finance lease from one of its
Subsidiary and being leased out to a third party under an operating
Lease 1,500,000

1. What is the total investment property that should be reported in the consolidated statement
of financial position of the parent and subsidiaries on December 31, 2022?
2. What is the total investment property that should be reported in the separate statement of
financial position of Jensen Co. on December 31, 2022?
3. What total amount should be considered as owner-occupied property and included in PPE
in the consolidated statement of financial position of the parent and its subsidiaries on
December 31, 2022?

Problem 3: Measurement principles

Venn Corporation acquired a building on January 1, 2022 for P180 million. At that date, the building
had a useful life of 40 years.
On December 31, 2022 and December 31, 2023, the fair value of the building was P192 million and
P188 million, respectively.

The building was classified as an investment property.

Case 1: The building is accounted for under cost model.

1. What amount should be recognized in profit or loss for 2022?
2. What amount should the building be reported on December 31, 2022?
3. What amount of expense in relation to the investment property should be recognized for
2023?
4. What amount should the building be reported on December 31, 2023?

Case 2: the building is accounted for under the fair value model
1. What amount should be recognized in profit or loss for 2022?
2. What amount should the building be reported on December 31, 2022?
3. What amount of expense in relation to the investment property should be recognized for
2023?
4. What amount should the building be reported on December 31, 2023?

Problem 4: Measurement Principles

M.S Company completed the construction of the “all-out” shopping mall at the end of 2021 at a total
cost of P50 million. The shopping mall has an estimated economic life of 20 years. The mall was
constructed for the purpose of earning rentals by letting out space in the shopping mall to tenants.

The fair value of the shopping mall on December 31, 2022 and 2023 were P60 million and P75
million, respectively.

Case 1: the entity’s policy is to use the cost model to account for its investment property.
1. At what amount should the investment property be presented on December 31, 2022?
2. How much is the depreciation expense to be recognized in 2023?
3. How much is the gain on fair value change to be recognized in 2023?
4. At what amount should the investment property be presented on December 31, 2023?
5. Assuming the construction was completed on March 31, 2022, at what amount should the
investment property be presented on December 31, 2023?

Case 2: the entity’s policy is to use the fair value model to account for its investment property.
1. How much is the gain on fair value change to be recognized in 2022?
2. At what amount should the investment property be presented on December 31, 2022?
3. How much is the gain on fair value change to be recognized in 2023?
4. How much is the depreciation expense to be recognized in 2023?
5. At what amount should the investment property be presented on December 31, 2023?

Problem 5

On July 1, 2022, Bronze Co. acquired a property consisting of twenty identical freehold detached
houses each with separate legal title including the land on which it is built for 400 million, 30% of
which is attributable to the land. The units have a useful life of 40 years.

The following additional costs are also incurred on such date:

 Transfer taxes 40 million
Legal costs directly attributable to the acquisition 2 million
Local property taxes for the period ending June 30, 2023 400 thousand
Advertising campaign 1 million
Opening function to celebrate new business 1.2 million

Throughout the six-month period ended December 31, 2022, the entity incurred repairs and
maintenance of 360 thousand.
The entity used on of the twenty units to accommodate the administration and maintenance staff.
The other nineteen units are rented out to external parties under an operating lease.
On December 31, 2022, the fair value of the investment property was 570 million. The accounting
policy is to use the fair value model to account for investment properties.

1. At what amount should the investment property be initially recognized?

2. At what amount should the land to be accounted for as an owner-occupied property be
initially recognized?
3. At what amount should the building to be accounted for as an owner-occupied property be
initially recognized?
4. What amount should be recognized in profit or loss for 2022 as gain on fv change?
5. How much is the depreciation expense to be recognized for 2022?
6. What total amount should be reported as expenses in 2022 in relation to the property?

Problem 6
Shawana Corp. a real estate company, had a building with a carrying amount of P1,000,000 on
December 31, 2022. This building was used as offices of the entity’s administrative staff. On this
date, the entity intended to rent out of the building to external parties. The staff will be moved to a
building purchased early in 2022. The original building has a fair value of P2,500,000.
Also, on December 31, 2022, the entity had land was held for sale in the ordinary course of
business. The land has a carrying amount of P2,000,000 and a fair value of P5,000,000 on December
31, 2022. The entity decided to hold the land for capital appreciation.

Case 1: the entity’s accounting policy is to carry all investment property using the cost model.
1. What amount should be recognized as gain on transfer of classification of building to be
reported in profit or loss on December 31, 2022?
2. Assuming the fair value on the original building is P800,000, what amount should be
recognized as loss in the income statement for 2022?
3. What amount should be recognized as gain on transfer of classification of land to be
reported in profit or loss on December 31, 2022?

Case 2: the entity’s accounting policy is to carry all investment property using the fair value model.
1. What amount should be recognized as gain on transfer of classification of building to be
reported in profit or loss on December 31, 2022?
2. Assuming the fair value on the original building is P800,000, what amount should be
recognized as loss in the income statement for 2022?
3. What amount should be recognized as gain on transfer of classification of land to be
reported in profit or loss on December 31, 2022?

PAS 41 – Agriculture

Problem 1
Emong Farms Inc. included the following in its biological asset account at the end of its reporting
period:
Fruit trees (Including fruits attached to it, P200,000) 900,000
Harvested Fruits 400,000
Grape Vines 880,000
Tomato Vines 300,000
Dairy Cattle 500,000
Harvested Milk 50,000
Pigs 100,000
Dogs used to secure the farm 20,000

Based on the information, how much should be reported as biological asset?

Problem 2
Dasma Corp is engaged in agricultural activity. Its trial balance at December 31 presents the
following assets related to its farm land:

1. Two tractors (P500,000 each)

2. Four computers (P20,000 each)
3. Computer Software (P50,000)
4. Fruit bearing trees (estimated value, P20,000,000 of which P3,000,000 is attributed to the fruits
attached to the trees)
5. Harvested fruits (estimated value P2,000,000)
6. Trees grown for use as lumber (estimated value P10,000,000)
7. Trees that are cultivated both for their fruit and their lumber (estimated value, P8,000,000)
8. Maize and wheat (estimated value P4,000,000)

Based on the given information, how much should be reported as biological asset?

Problem 3
The following pertains to Noveleta Company’s biological assets:

Price of the asset in the principal market P18,000

Price of the asset in the different market 19,000
Selling price in a binding contract to sell 20,000
Estimated commission to brokers 1,800
Estimated transport and other costs necessary
To get the asset to the market 1,200

The entity’s biological asset should be valued at.

Problem 4
The following pertains to Kawit Company Biological Asset:

Fair value based on quoted price in an active market for similar asset P5,100
Fair value based on quoted price in an active market for identical asset 5,000
Fair value based on unobservable inputs for the asset 4,900
Selling price in a binding contract to sell 5,200
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get asset to the market 300
The entity’s biological asset should be valued at

Problem 5
On December 31, 2021, Bacoor Corp., tomato grower, tomato vines are bearing developed ripe
tomatoes. On this date, the fair value less cost to sell of the vines with the soon to be harvested
tomatoes attached is measured at P24,000. The initial cost of the vines was P5,500 and the cost of
growing them during 2021 (planting, irrigation, and fertilization) was P7,520.

The entity harvested its tomatoes on January 3, 2022. The cost of harvesting the tomatoes is P1,000.
The quoted price per kilogram of tomatoes is P50 and the cost to sell are estimated at 1 percent of
quoted price. The entity harvested 500 kilograms tomatoes.

The life of tomato vine is about 6 months. After harvest, the vine has come to an end of its life and
its fair value is negligible.

1. The fair vale adjustment gain to be recognized in 2021 profit or loss is

2. The fair value adjustment gain on initial recognition of agricultural produce to be recognized in
2022 profit or loss is

Problem 6
The following are related to the biological asset of Silang Inc.

Carrying amount, January 1, 2021 P800,000

Purchases 230,000
Gain arising from changes in fair value less cost to sell
Attributed to physical changes 60,000
Gain arising from changes in fair value less cost to sell
Attributed to price changes 40,000
Sales 110,000

Based on the above, determine the following:

1. The carrying amount of biological assets on December 31, 2021.
2. The amount to be recognized in 2021 profit or loss related to these biological assets is

Problem 7
Carmona Corp. is engaged in raising daily livestock. Data provided in 2021 follows:

Carrying amount on Dec. 31, P2,500,000; increase due to purchases, P1,000,000; Gain arising from
change in fair value less cost to sell attributable to price change, P200,000; Gain arising from
change in fair value less cost to sell attributable to physical change, P300,000; Decrease due to
harvest, P100,000.

The carrying amount of the biological assets of Carmona Corp. on January 1, 2021 is

Problem 8
The following pertains to the biological assets owned by Maragondon Farms Inc.:

Carrying amount, January 1 P800,000

Carrying amount, December 31 1,080,000
Purchases 230,000
Sales 110,000

The amount to be recognized in the current period profit or loss related to these biological asset is

Problem 9
The following is in connection with Indang’s Biological Asset:

A herd of 17 2-year old animals was held at January 1 of the current period. On July 1, two animals
aged 2.5 years was purchased for 10,800 and one animal was born. No animals was sold or
disposed of during the period. Per unit fair values less cost to sell (FV-CTS) were as follows:

2-year-old animal on January 1 10,000

New born animal on July 1 7,000
2.5-year-old animal on July 1 10,800
New born animal on December 31 7,200
0.5 year old animal on December 31 8,000
2-year-old animal on December 31 10,500
2.5-year-old animal on December 31 11,100
3.0-year-old animal on December 31 12,000

Based on the above, answer the following:

1. The carrying amount of biological assets as of December 31 is
2. The increase in FV-CTS of biological assets in the current period due to price changes is
3. The increase in FV-CTS of biological assets in the current period due to physical changes is

Problem 10
Tanza Dairy Products, produces milk on its farms. As of January 1, 2021, Tanza has a stock of 1,050
cows (average age, 2 years old) and 150 heifers (average age, 1 year old).

Additional information:
 Tanza purchased 375 heifers, average age 1 year, on July 1, 2021. No animals were born or
sold during the year.
 Tanza produced milk with a fair value of P660,000 (that is determined at the time of
milking) in the year ended December 31, 2021. It also estimated the following costs:
Commission to broker and dealers 20,000
Transport and other costs necessary to get the milk to a market 10,000
 Tanza has had a problem during the year. Contaminated milk was sold to a customers. As a
result, milk consumption has gone down. The government decided to compensate farmers
for potential loss in revenue from sale of milk. This fact was published in the National Press
on December 1, 2021. Tanza received an official letter on December 10, 2021, stating that
P100,000 would be paid to it on April 3, 2022.
 Tanza’s business is spread over different parts of the country. The only region affected by
the contamination was Region X, where the government curtailed milk production in the
region. The cattle were unaffected by the contamination and were healthy. Tanza estimates
that the future discounted cash flows income from the cattle in region X amounted to
P2,000,000, after taking into account the government restrictions order. The company feels
that it cannot measure the fair value of the cows in the region because of the problems
created by contamination. There are 300 cows and 100 heifers in the region. All these
animals had been purchased before January 1, 2021. A rival company had offered Tanza
 P1,500,000 for these animals after costs to sell and further offered P3,000,000 for the farms
themselves in the region. Tanza has no intention of selling the farms at present.

 The fair value less costs to sell (FV-CTS) were:

1-year-old animal on December 31, 2021 P3,200
2-year-old animal on December 31, 2021 4,500
1.5-year-old animal on December 31, 2021 3,600
3-year-old animal on December 31, 2021 5,000
1-year-old animal on January 1, 2021 and July 1, 2021 3,000
2-year-old animal on January 1, 2021 4,000

Based on the above, answer the following:

1. The milk should be valued at

2. The increase in FV-CTS of biological assets in 2021 due to price changes is
3. The increase in FV-CTS of biological assets in 2021 due to physical changes is
4. The carrying amount of biological assets as of January 1, 2021 is
5. The carrying amount of biological assets as of December 31, 2021 is