CHAPTER 8
INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS AND NONCURRENT ASSETS HELD FOR SALE
PROBLEMS
8-1. Investment Property
(a), (b), (c), (e), (g), (o), (r) with option to or not to report as investment property (d) not shown in the financial statements
(f) Property, Plant and Equipment
(h) Property, Plant and Equipment, until consummation of lease (i) Inventories
(j) Inventories
(k) Construction in Progress (Inventories) (l) Property, Plant and Equipment (m) Property, Plant and Equipment (n) Property, Plant and Equipment (p) Property, Plant and Equipment
(q) not shown, unless leased under finance lease (PPE) 8-2. (Sebastian Corporation)
a. Purchase price P 8,600,000
Commission to real estate agent 430,000 Costs of clearing the land (net of timber and gravel recovered
amounting to P65,000) 70,000
Total cost . P 9,100,000
b. Down payment P 4,000,000
Market value of shares issued (20,000 x 240) 4,800,000 Present value of non-interest bearing note issued
(2,000,000 x 2.4869) 4,973,800
Total cost of land and building P13,773,800 Cost allocated to land (30% x 13,773,800) P 4,132,140 Cost allocated to building (70% x 13,773,800) P 9,641,660 8-3. (Precious Realty Corporation)
1/2/13 Buildings 8,200,000
Accumulated Depreciation – Building Held as
Investment Property 4,200,000
Buildings Held as Investment Property 8,200,000 Accumulated Depreciation - Buildings 4,200,000 12/31/13 Depreciation Expense – Buildings 200,000
Accumulated Depreciation - Buildings 200,000 8-4. (Absolute Corporation)
Cost Model
(a) Investment Property at December 31, 2013
Land P 5,000,000
Cost P20,000,000 Accumulated Depreciation
20,000,000/40 x 3 1,500,000 18,500,000
Total Investment Property P23,500,000
(b) Amounts and Accounts Taken to Profit or Loss
Rent Revenue P 3,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P 1,960,000
Fair Value Model
(a) Investment Property at December 31, 2013
Land P 6,800,000
Building 20,000,000
Total Investment Property P26,800,000
(b) Amounts and Accounts Taken to Profit or Loss
Rent Revenue P3,000,000
Change in Fair Value of Investment Property
Land 800,000
Building 1,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P3,760,000
8-5. (Raymond Company)
1. Building Construction Fund Cash Cash
2. Building Expansion Fund Securities Building Expansion Fund Cash 3. Building Expansion Fund Securities
Interest Receivable – Building Expansion Fund Building Expansion Fund Cash 4. Building Expansion Fund Cash
Dividend Income
5. Building Expansion Fund Expenses Building Expansion Fund Cash 6. Building Expansion Fund Cash
Interest Income
7. Building Expansion Fund Securities Building Expansion Fund Cash 8. Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities Interest Income
9. Building Expansion Fund Cash Dividend Income 10. Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities 11. Buildings
Building Expansion Fund Cash 12. Cash
Building Expansion Fund Cash 8-6. (Cordero Corporation)
(a) Required Semiannual Deposit
= P15,000,000/ FV of annuity of 1 discounted at 4% for 20 periods = P15,000,000 / 29.7781 = P503,726
(b) 1/2/13
Bond Sinking Fund Cash 503,726
Cash 503,726
6/30/13
Bond Sinking Fund Cash 523,875
Cash 503,726
Interest Income (503,726 x 4%) 20,149 12/31/13
Bond Sinking Fund Cash 544,830
Cash 503,726
Interest Income 41,104 4% ( 503,726 + 523,875) = 41,104
8-7. (Dorina Company) (a)
Entries for 2008 through 2013
7/01/08 Prepaid Life Insurance 120,000
Cash 120,000
12/31/08 Life Insurance Expense 60,000
Prepaid Life Insurance 60,000
Cash 120,000
12/31/09 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000
06/30/10 Prepaid Life Insurance 120,000
Cash 120,000
12/31/10 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000
06/30/11 Prepaid Life Insurance 120,000
Cash 120,000
12/31/11 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000
12/31/11 Cash Surrender Value* 36,000
Life Insurance Expense 36,000
06/30/12 Prepaid Life Insurance 120,000
Cash 120,000
12/31/12 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000
Cash Surrender Value 13,000
Life Insurance Expense 13,000 3/31/13 Life Insurance Expense 30,000
Prepaid Life Insurance 30,000
Receivable from Insurance Company 4,000,000
Prepaid Life Insurance 30,000 Cash Surrender Value 49,000 Gain on Insurance Settlement 3,921,000 *The cash surrender value of life insurance may be recognized on the anniversary date (June 30, 2011 and every June 30 thereafter). No proportionate adjustment, however, is necessary at year end because there is no actual increase in cash surrender between anniversary dates.
(b) If the president or his heirs were the beneficiaries of the policy, the premiums paid shall be charged to employees benefit expense and no cash surrender value will be set up by the company.
8-8. (Solidbank)
(a) P10,000,000 x 0.3220 = P3,220,000
(b) Interest Income in 2012 = 12% x P3,220,000 = P386,400
Prepaid Compensation Expense 6,780,000
Cash 10,000,000 12/31/12 Advances to Officers 386,400
Interest Revenue 386,400 Compensation Expense 678,000
Prepaid Compensation Expense 678,000 6,780,000/10 = 678,000
12/31/13 Advances to Officers 432,768
Interest Revenue 432,768 (3,220,000 + 386,400) x 12% = 432,768
Compensation Expense 678,000
Prepaid Compensation Expense 678,000 d. Amortized Cost at December 31, 2013 = 3220,000 + 386,400 + 432,768 =
4,039,168 8-9. (Patriarch, Inc.)
(a) 12/31/12 Machinery Group Held For Sale 1,400,000 Accumulated Depreciation – Machinery 1,200,000 Impairment Loss – Machinery 200,000
Machinery 2,200,000 Machinery Tools 380,000 Machinery Parts 220,000 (b) 07/17/13 Cash (1,520,000 – 60,000) 1,460,000
Machinery Group Held For Sale 1,400,000 Gain on Sale of Machinery 60,000 8-10. (Invecargill Ltd.)
(a) 08/01/12 Impairment Loss – Equipment 15,000 Loss from Decline in NRV of Inventory 5,000
Accumulated Depr- Equipment 15,000 Inventory 5,000 (b) Assets Held for Sale 350,000
Accumulated Depreciation 95,000 Impairment Loss 30,000 Plant 220,000 Equipment 160,000 Inventory 75,000 Goodwill 20,000 (c) 02/01/13 Cash (380,000 – 30,000) 350,000
Assets Held For Sale 350,000 8-11.
Cost = 42,000 ÷(3/5) = 70,000 Accumulated Depreciation = 70,000 – 42,000 = 28,000 (a) Mar. 31 Depreciation Expense (14,000 x 3/12) 3,500
Accumulated Depreciation 3,500
Asset Held for Sale 36,000
Impairment Loss 2,500
Accumulated Depreciation 31,500
Equipment 70,000
Dec. 31 Asset Held for Sale 2,500
Recovery of Previous Impairment 2,500
(b) Dec. 31 Impairment Loss 1,000
Asset Held for Sale 1,000
MULTIPLE CHOICE MC1 C MC9 B MC2 C MC10 A MC3 B MC11 B MC4 A MC12 A MC5 B MC13 D MC6 C MC14 B MC7 C MC15 C MC8 D MC16 A MC17 B 10M + 20M = 30M
MC18 A Revaluation surplus is credited; transfer is from owner-occupied property. MC19 D 20,000,000 – 15,000,000
MC20 D 18,000,000 x 39/40 = 17,550,000; depreciation = 18,000,000/40 = 450,000 MC21 C FV = 20,000,000; gain = 20,000,000 – 18,000,000 = 2,000,000
MC22 A 110,000 – (115,000 – 80,000) = 75,000
MC23 D 9.0M – 1.5M = 7.5M which is lower than carrying amount of 8.0M MC24 D (9,200,000 – 1,300,000) – 7,500,000 = 400,000 MC25 C 2,000,000 x 0.7972 = 1,594,400 1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 = 1,690,064 MC26 B 100,000 + (200,000 – 160,000) = 140,000 MC27 D 40,000 – (108,000 – 87,000) – 6,000 = 13,000 MC28 B 2,250,000 + 450,000 + 75,000 + 150,000 – 25,000 = 2,900,000 MC29 C 5,000,000/ 5.11 = 978,500
