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ACCOUNTING FOR PARTLY OWNER-OCCUPIED AND PARTLY a. Cost model - the investment property is carried at Cost less any accumulated
INVESTMENT PROPERTY: depreciation and any accumulated impairment losses.
If the owner uses part of the property for its own use, and part to earn rentals or b. Fair Value model - the investment property is carried at fair value without
for capital appreciation, and the portions can be sold or leased out separately, they deducting cost to sell. Any changes in fair value is recognized in profit or loss of
are accounted for separately. Therefore, the part that is rented out is investment the period in which they arise.
property. If the portions cannot be sold or leased out separately, the property is
investment property only if the owner-occupied portion is insignificant. One method must be adopted for all of an entity's investment property. Change is
permitted only if this results in a more appropriate presentation. PAS 40 notes that
If could be sold separately, One portion is investment property, this is highly unlikely for a change from a fair value model to a cost model.
another portion is owner-occupied
property The best evidence of fair value. It is normally given by current prices on an active
market for similar property in the same location and condition and subject to
If could not be sold separately, and similar lease and other contracts. In the absence of such information, the entity may
The owner-occupied is insignificant All portion is investment property consider current prices for properties of a different nature or subject to different
component* conditions, recent prices on less active markets with adjustments to reflect changes
in economic conditions, and discounted cash flow projections based on reliable
If could not be sold separately, and All portion is owner-occupied
estimates of future cash flows.
The owner-occupied is significant property
component**
Transfers to, or from, investment property should only be made when there is a • ADDITIONAL DISCLOSURE FOR FAIR VALUE MODEL:
change in use, evidenced by one or more of the following:
1. Commencement of owner-occupation (transfer from investment property 1. Whether property interests held under operating leases are classified and
to owner-occupied property); accounted for as investment property;
2. Commencement of development with a view to sale (transfer from 2. The methods and significant assumptions applied in determining the fair value
investment property to inventories); of investment property. The extent to which the fair value of investment property
3. End of owner-occupation (transfer from owner-occupied property to is based on a valuation by a qualified independent valuer; if there has been no
investment property) such valuation, that fact must be disclosed;
4. Commencement of an operating lease to another party (transfer from 3. The cumulative change in fair value recognized in profit or loss on a sale from
inventories to investment property) a pool of assets in which the cost model is used into a pool in which the fair
5. End of construction or development (transfer from property in the course value model is used
of construction/development to investment property. 4. A reconciliation between the carrying amounts of investment property at the
beginning and end of the period, showing additions, disposals, fair value
adjustments, net foreign exchange differences, transfers to and from inventories
FROM TO INVESTMENT INITIAL MEASUREMENT and owner-occupied property, and other changes
PROPERTY 5. Whether significant fixtures, such as lift and office furniture, within an
CARRIED AT investment property, have been separately recognized.
Owner-occupied Investment Cost Model Carrying value of owner-
property and Property occupied property and • ADDITIONAL DISCLOSURE FOR COST MODEL:
inventory inventory. 1. The depreciation methods or rate used and the useful life;
2. The gross carrying amount and the accumulated depreciation (aggregated with
Owner-occupied Investment Fair Value Fair Value of owner-occupied accumulated impairment losses) at the beginning and end of the period;
property Property Model property. Difference between 3. Reconciliation of the carrying amount of investment property at the beginning
CV and FV should be treated in and end of the period, showing additions, disposals, depreciation, impairment
the same way as a revaluation, recognised or reversed, foreign exchange differences, transfers to and from
impairment or gain on inventories and owner-occupied property, and other changes;
reversal of impairment in 4. The fair value of investment property. If the fair value of an item of investment
accordance with PAS 16 and property cannot be measured reliably, additional disclosures are required,
PAS 36. including, if possible, the range of estimates within which fair value is highly
likely to lie.
Fair Value XX
Carrying Value (XX)
RS (or impairment loss) XX EXERCISES:
Inventory Investment Fair Value Fair Value of inventory.
Property Model Difference between CV and FV 1. Ace Company acquired an investment property with an installment price of
should be recognized P2,400,000. The acquisition of the property requires downpayment of 20% and a
immediately in profit or loss. non-interest bearing note payable at the end of each year for 5 years. The
prevailing market rate of interest for similar instrument is 12%. Ace incurred
Fair Value XX transaction costs amounting to P50,000 for the property. What is the acquisition
Carrying Value (XX) cost of the investment property?
Gain (loss) on reclassification to a. P 1,862,400 b. P 1,914,320 c. P 2,400,000 d. P 2,450,000
investment property XX
Investment Investment Fair Value Fair Value of inventory.
Property under Property Model Difference between CV and FV 2. On January 2, 2009, Grand made a test of impairment on one of its buildings
construction should be recognized carried as plant asset. The test on impairment revealed a recoverable value of
immediately in profit or loss. P5,500,000 on that building. The carrying amount of this building as of January
2, 2009 was P8,000,000 with a remaining useful life of 10 years.
Fair Value XX On January 2, 2011, Grand decided to convert this building into an investment
Carrying Value (XX) property that is to be carried at fair value. The cost of converting the building is
Gain (loss) on reclassification to insignificant but as a result of the change in the usage, the fair value of the
investment property XX building was reliably measured at P7,000,000. What amount of realized revenue
should Grant recognize in its profit or loss statement on the date of transfer?
Investment Owner- Cost Model Carrying value of investment
a. P 0 b. P 600,000 c. P 2,000,000 d. P 2,600,000
Property occupied property.
property
and 3. Using data in no. 2, what amount of unrealized gain should Grant recognize in
Inventory its shareholders' equity on the date of transfer?
Investment Owner- Fair Value Fair Value of investment a. P 0 b. P 600,000 c. P 2,000,000 d. P 2,600,000
Property occupied Model property at date of change in
property use. Changes from previous fair 4. Carol's investment property has a historical cost of P2,400,000. On December
and value shall be included in the 31, 2011, the fair value of this investment property is P2,800,000. If carol uses
Inventory profit or loss. the fair value model to account for the difference, Carol should:
a. recognize P400,000 unrealized gain in shareholders' equity
FV-date of change in use XX b. recognize P400,000 unrealized gain in the profit or loss
FV-last reporting period (XX) c. recognize a revaluation surplus of P400,000
Gain (loss) in fair value XX d. not recognize the P400,000 increase
ANSWER KEY:
Net Proceeds from sale XX
Less: Carrying value of investment property (XX) 1. B 2. C 3. B 4. B 5. A
Gain (loss) on sale XX