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6. What is the treatment of property that is partly investment and partly owner-occupied?
11. Explain the cost model and fair value model of measuring investment property.
13. What is the best evidence of the fair value of investment property?
14. Explain the measurement of the investment property if the fair value cannot be determined reliably.
b. Transfer from investment property carried at fair value to owner-occupied property or inventory.
c. Transfer from owner-occupied property to investment property that is to be carried at fair value.
1. It is defined as property (land or building or part of building or both) held by an owner or finance lessee to
earn rentals or for capital appreciation or both.
a. Investment property
b. Owner-occupied property
c. Mining Property
d. Rental Property
a. I only
b. II only
c. Both I and II
d. Neither I and II
5. Which statement is correct 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
b. II only
c. Both I and II
d. Neither I and II
6. If an entity owns and manages a hotel, services provided to guests are 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 owner-occupied property
II. From the perspective of the affiliate as a group and for purposes of consolidates financial statements. The
property is treated as owner-occupied property.
a. I only
b. II only
c. Both I and II
d. Neither I and II
I. It is probable that the future economic benefits that are associated with the investment property will flow
to the entity.
a. I only
b. II only
c. Both I and II
d. Neither I and II
a. Professional fees for legal services, property and transfer taxes and other transaction costs.
b. Start up costs.
c. Operating losses incurred before the investment property achieves the planned level of occupancy.
d. Abnormal amounts of wasted material, labor and other resources incurred in constructing or
developing the property.
Problem 14-2 Multiple Choice (PAS 40)
a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment losses
c. Revalued amount
d. Either fair value or costs less any accumulated depreciation and any accumulated impairment losses
a. Current price in an active market for similar property in the same location and condition.
b. Current price in an active market for property of different nature, condition and location adjusted to
reflect those differences.
c. Recent price of similar property in less active market.
d. Discounted cash flow projection based on reliable estimate of future cash flows.
a. An entity shall determine the fair value of investment property by deducting transaction costs that may be
incurred upon disposal.
b. The fair value of investment property shall reflect market conditions at the end of the reporting period.
c. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of
the furniture because the rental income relates to the furnished office.
d. The fair value of investment property excludes prepaid or accrued operating lease income.
4. Which statement is correct if there is inability to determine the fair value of an investment
property reliably?
I. PAS 40 mandates that the entity shall measure such investment property using the cost model until the
disposal the investment property.
II. The residual value such investment property shall be assumed zero under such exceptional circumstances
only.
a. I only
b. II only
c. Both I and II
d. Neither I and II
5. When the entity uses the cost model, transfers between investment property, owner-occupied
property and inventory shall be made at
a. Fair value
b. Carrying amount
c. Cost
d. Assessed value
6. A transfer form investment property carried at fair value to owner-occupied property shall be
accounted for at
a. Fair value, which becomes the deemed cost for subsequent accounting.
b. Carrying amount.
c. Historical cost.
d. Fair value less cost to sell.
9. When an investment property under construction is completed and to be carried at fair value, the
difference between the carrying amount and fair value shall be
10. Gain or loss disposal of investment property shall be determined as the difference between the
a. Net disposal proceeds and carrying amount of the asset and shall be recognized in profit or loss.
b. Net disposal proceeds and carrying amount of the asset and shall be recognized in other comprehensive
income.
c. Net disposal proceeds and carrying amount of the asset and shall be recognized in retained earnings.
d. Net disposal proceeds and fair value of the asset and shall be recognized in profit or loss.
1. A gain arising from a change in the fair value of an investment property for which
an entity has opted to use the fair value model is recognized in
a. Profit or loss
b. General reserve in the shareholders’ equity
c. Valuation reserve in the shareholders’ equity
d. Retained profits
a. Cost
b. Cost less accumulated impairment losses
c. Depreciable cost less accumulated impairment losses
d. Fair value less accumulated impairment losses
3. In case of property held under an operating lease and classified as investment property
a. The entity has to account for the investment property under the cost model only.
b. The entity has to use the fair value model only.
c. The entity has the choice between the cost model and the fair value model.
d. The entity needs only to disclose the fair value and can use the cost model.
7. Which of the following terms best describes property held to earn rentals or for capital appreciation?
a. Freehold property
b. Leasehold property
c. Owner-occupied property
d. Investment property
8. Which of the following additional disclosures must be made when an entity chooses the cost model as its
accounting policy for investment property?
9. PAS 40 a choice between two different models as the accounting policy to be used in relation to investment
property. Which of the following disclosures shall be made when the fair value model has been asopted?
10. The following properties fall under the definition of investment property, except?
a. Land held for long-term capital appreciation
b. Property occupied by an employee paying market rent
c. Land held for a currently undetermined use
d. A building owned by an entity and leased out under an operating lease
Eragon Company and its subsidiaries own the following properties that are accounted for in accordance with
international accounting standards:
Required:
1. Compute the total investment property that will be shown in the consolidated statement of financial of
position of Eragon Company and its subsidiaries.
2. Indicate the classifications of the assets that are excluded from investment property.
Galore Company ventured into construction of a condominium in Makati which is rated as the largest state-of-the art
structure. The entity’s board of directors decided that instead decided that instead of selling the condominium, the
entity would hold this property for purposes of earning rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the service on January 1, 2009. The cost of the
construction was P50 million. The useful life of the condominium in 25 years and its residual value is P5 million.
An independent valuation expert provided the following far value at each subsequent year end:
Required:
Prepare all indicated entries for 2009, 2010 and 2011 assuming the investment property is accounted for under the
cost model and fair value model.
Bona Company purchased an investment property on January 1, 2006 for a cost of P2, 200,000. The property had a
useful life of 40 years and at December 31, 2008 had a fair value of P3, 000,000. On January 1, 2009 the property
was sold for net proceeds of P2, 900,000. Bona uses the cost model to account for the investment property.
What is the gain or loss to be recognized in profit or loss for the year ended December 31, 2009 regarding the
disposal of the property?
a. 865,000 gain
b. 810,000 gain
c. 100,000 loss
d. 700,000 gain
Dayanara Company owns three properties which are classified as investment properties. Details of the properties are
given below:
Property 1
Property 2
Property 3
2, 700,000
3, 450,000
3, 300,000
Fair Value at
12/31/2008
3, 200,000
3, 050,000
3, 850,000
Fair value at
12/31/2009
3, 500,000
2, 850,000
3, 600,000