Module 2: Investment Property - when ancillary services are provided to the

occupants of a property held, the property is

− assets included and excluded from/to
classified as investment property if the services are
investment property.
insignificant.
− initial and subsequent measurement.
− income and expenses related to investment - if the services provided are significant, the entire
property. property is classified as owner-occupied property.
− transfers to and from investment property.

A. Inclusions and Exclusions: Investment Property includes:

- investment properties (IP) are land and building − land held for capital appreciation
(immovable or real property assets) held to earn − land held for undetermined future use
rentals or for capital appreciation or both. (PAS 40) − land being held as potential plant site
(potential not future)
- properties that do not meet the requirements of
− land and building being leased out under
PAS 16, PPE, (with physical substance, long term,
operating lease
and company is using it for administrative purposes
− land or building leased out to subsidiary in the
or production of goods) and other assets. (NCA
separate financial statement (as a general rule,
Held for Sale, Inventory, etc.)
a property rented out is classified as IP;
▪ Owner-Occupied Property – properties held however, if the lessee if your subsidiary, the
for use in the production or supply of goods property is classified as PPE in the
or services or for administrative purpose. consolidated financial statements but
These are classified as PPE, under PAS 16. classified as IP in the separate financial
statements of the parent)
B. Partially IP, Partially Owner Occupied − land or building under construction or
developed as investment property
(e.g., one floor or portion of the building or land is
owner occupied, the other is classified as IP for Investment Property excludes:
rent)
− land or building used in production,
i. Can be sold/rented out separately – the administrative, and selling purposes (PPE)
value of the whole property should be split- − land or building being leased out under finance
up to IP and owner occupied. lease (sold out in installment to lessee; not
recognized in the books of the lessor)
ii. Cannot be sold/rented out separately – if − land or building for sale in the ordinary course
the owner-occupied portion is insignificant of business (Inventory)
(not large enough), the whole property will − land or building for sale not in the ordinary
be classified as IP, otherwise it will be course of business (NCA Held for Sale)
classified as owner occupied. (depends on − land or building under construction or
who has the larger portion) developed as owner-occupied (PPE)
− land or building leased out under operating
C. Ancillary Service to Occupants lease to subsidiary in the consolidated
financial statement
(e.g., support services like security, janitorial
− land or building leased out under operating
services, etc.)
lease to employees at or below market rent
− building being constructed in behalf of third Land held as potential plant
5,000,000
parties (PPE) site.
− hotel (main source of revenue is to rent the A vacant building to be leased
20,000,000
hotel rooms to customers; used in the out under an operating lease.
production of services; PPE) Property held for sale in the
− non land or building items (e.g., machine, ordinary course of its 30,000,000
equipment, furniture and fixtures) business.
Property acquired exclusively
with a view to subsequent 4,000,000
disposal in the near future.
Problem A: Cynthia Villar Company has the
Property occupied by
following property items at December 31, 2023: employees paying market 3,000,000
Land which at the date of rent.
acquisition is not intended for 1,000,000 Property occupied by
any specific use in the future. employees paying below 1,000,000
Land held for future plant site. 2,000,000 market rent.
Building being leased out Property held for
8,000,000 10,000,000
under operating lease. administrative purposes.
Building being leased out A hotel owned and managed. 50,000,000
2,500,000 A building being leased out to
under finance lease. 8,000,000
Equipment being leased a subsidiary.
1,500,000 Property that is being
under operating lease.
Land and building acquired constructed for use as an 2,000,000
under finance leases being investment property.
used by the entity as its 9,200,000 A building, which cannot be
general and administrative sold or leased out separately,
headquarter. used in the production of
7,000,000
Condominium building that is goods and around 2% of the
being constructed, intended area being leased our to
5,000,000 canteen operators.
for sale in the ordinary course
of business.
Building leased out under How much should be reported as investment
operating lease, insignificant
6,000,000 properties in Minty Corporation’s separate financial
portion is used for
statements?
administrative purposes.
Hotel building owned which answer = ₱ 35,000,000
significant services are 7,000,000
provided to guests.
MCQ 1: Which of the following does not describe
How much should be classified as investment investment property?
properties on December 31, 2023? - held for sale in the ordinary course of business.
answer = ₱ 15,000,000 (IP is either held to earn rentals, for capital
appreciation, or both)

Problem B: Minty Corporation has the following

property items at December 31, 2023: MCQ 2: Investment property includes:
 a. Property acquired exclusively with a view to Subsequent Cost XX
Fair Value =
subsequent disposal in the near future. Measurement Acc. D. (XX)
Carrying
(NCA Held for Sale) Acc. I. (XX)
Amount
b. Property occupied by an employee paying Carrying XX
market rent. (PPE) Depreciation With No
c. Property occupied by an employee paying Depreciation Depreciation
below market rent. (PPE) Impairment With
No Impairment
Loss Impairment
d. Property held for currently undetermined
Unrealized With
future use. No Unrealized
Gain or Loss Unrealized
Gain or Loss
Gain or Loss
Expenses - Depreciation - Unrealized
D. Initial Measurement of IP Incurred - Impairment Loss
- the rule on initial measurement of IP are the same Income - Unrealized
- None
Gain
with PPE. (at cost)

▪ purchase price, including import duties and

Problem C (Cost Model): Santana Company
nonrefundable purchase taxes, after
acquired a building on January 1, 2022 for ₱
deducting trade discounts and rebates.
900,000. At the date, the building has a useful life of
(costs to acquire from seller)
30 years. At December 31, 2022, the fair value of the
▪ cost directly attributable to bringing the
building was ₱ 960,000. The building was classified
asset to the location and condition
as an investment property and accounted for under
necessary for it to be capable of operating in
the cost model.
the manner intended by management.
▪ initial estimate of the cost of dismantling ▪ What is the carrying amount of the investment
and removing the item and restoring the site property as of the year ended December 31,
on which it is located, the obligation for 2022?
which an entity incurs.
answer = ₱ 870,000
E. Subsequent Measurement of IP Initial Cost 900,000
Accumulated Depreciation (30,000)
- after initial recognition, an entity shall choose one
(900,000 ÷ 30 years)
of the following as its accounting policy:
Accumulated Impairment 0
▪ Cost Model Carrying Amount 870,000
▪ Fair Value Model

- when an entity chooses an accounting policy, it Test for Impairment:

shall use the accounting policy chosen for all of its
Carrying Amount 870,000
investment properties consistently from on period
Recoverable Amount 960,000
to the next.
(FV vs. VIU, higher)
- if the fair value of the property is not determinable Impairment Loss 0
reliably, the entity shall use the cost model. (RA is higher than CA)

Cost Model Fair Value

Initial same as PPE same as PPE ▪ What is the amount to be recognized in the
Measurement (at cost) (at cost) income statement for the year 2022?

answer = ₱ 30,000
Depreciation Expense (2022) = 30,000 Each of the property was acquired in 2020 with a
(900,000 ÷ 30 years) useful life of 50 years. The entity’s accounting
Impairment Loss (2022) = 0 policy is to use the fair value model for investment
properties.

Problem D (Fair Value Model): 50 Cent Compant ▪ What is the gain or loss to be recognized for
acquired a building on January 1, 2022 for ₱ the year ended December 31, 2022?
18,000,000. At that date, the building had a useful answer = ₱ 400,000 loss
life of 40 years. The fair value of the building was ₱
20,000,000 at December 31, 2022. The building was Fair Value, end. 9,700,000
(3.5M + 2.8M + 3.4M)
appropriately classified as investment property and
Fair Value, beg. 10,100,000
accounted for using the fair value model.
(3.2M + 3M + 3.9M)
▪ What is the carrying amount of the investment Unrealized Loss 400,000
property as of the year ended December 31,
2022?
Problem F: 3 Doors Down Company purchased an
answer = ₱ 20,000,000 investment property on January 1, 2022 at a cost of
- the fair value is also the carrying amount of the ₱ 2,200,000. The property had a useful life of 40
property at year-end, if the company uses the fair years and on December 31, 2022 had a fair value of
value model. ₱ 3,000,000. On December 31, 2023, the property
was sold for net proceeds of ₱ 2,900,000.

▪ What is the gain or loss from sale to be

▪ What is the amount to be recognized in the recognized for the year ended December 31,
income statement for the year 2022? 2023 of 3 Doors Down under the following
answer = ₱ 2,000,000 gain models?

Fair Value, end. 20,000,000 a. Cost Model:

Fair Value, beg. 18,000,000
Unrealized Gain 2,000,000 answer = ₱ 810,000 gain

Initial Cost 2,200,000

Accumulated Depreciation (110,000)
MCQ 4: Depreciation, if applicable, and impairment (2,200,000 ÷ 40 years x 2 years)
losses are recognized under: Accumulated Impairment 0
Carrying Amount 2,090,000
- only the cost model.

Selling Price 2,900,000

Problem E: Panic Co. owns three properties which Carrying Amount (2,090,000)
are classified as investment properties. Details of Gain on Sale 810,000
the properties are as follows:

Initial Cost FV (2021) FV (2022) b. Fair Value Model:

A 2,700,000 3,200,000 3,500,000
B 3,450,000 3,000,000 2,800,000 answer = ₱ 100,000 loss
C 3,300,000 3,900,000 3,400,000
Selling Price 2,900,000 results in either gain or loss on reclassification.
Carrying Amount (3,000,000) (P/L)
Loss on Sale 100,000
Fair Value of IP XX
CA of PPE (XX)
F. Reclassification to and From Investment Revaluation (Impairment) XX
Property

- transfers to, or from, investment property shall be Scenario 5-6: IP (Cost Model) to PPE or Inventory
made when, and only when, there is a change in use.
- (initial measurement) CA of IP on reclassification
There are two issues in the reclassification:
date.
▪ initial measurement of the new classification
- (gains or losses) no gains or losses on
▪ gains and losses from reclassification
reclassification.
▪ model used in subsequent measurement of
investment property

Scenario 7-8: PPE or Inventory to IP (Cost Model)

Scenario 1-2: IP (FV Model) to PPE or Inventory
- (initial measurement) CA of PPE or Inventory on
- (initial measurement) FV of IP on reclassification reclassification date.
date.
- (gains or losses) no gains or losses on
- (gains or losses) no gains or losses on reclassification.
reclassification.

Problem G: On January 1, 2023, Blitz Company

Scenario 3: PPE to IP (FV Model) acquired an investment property at a total cost of ₱
5,000,000. At December 31, 2023, the carrying
- (initial measurement) FV of IP on reclassification
amount of the property in the company’s books is ₱
date.
6,000,000. On December 31, 2024, Blitz Company
- (gains or losses) increase in value from carrying decided to use the property and immediately
amount to fair value results in revaluation surplus reclassify as plant asset (owner occupied property).
recorded in the OCI; decrease in value from carrying
- fair value model (the carrying amount increased)
amount to fair value results in impairment loss
recorded in P/L. ▪ What would be the initial cost of the plant
asset if it has a fair value of ₱ 6,500,000 at
Fair Value of IP XX
conversion date?
CA of PPE (XX)
Revaluation (Impairment) XX answer = ₱ 6,500,000

Fair Value of IP (12/31/24) 6,500,000

Scenario 4: Inventory to IP (FV Model) Initial Cost of PPE (12/31/24) 6,500,000
(initial cost = fair value at reclassification date)
- (initial measurement) FV of IP on reclassification
date.
▪ What amount of revaluation surplus Blitz
- (gains or losses) increase or decrease in value Company would recognize at the time of
from carrying amount of inventory to fair value of IP conversion?

answer = 0 (no gain or loss on reclassification)

(Journal Entries: 12/31/24) Problem I: An office building used by Cute for
administrative purposes had a depreciated
Investment Property 500,000
historical cost of ₱ 2,000,000. At January 1, 2016, it
Unrealized Gain 500,000
had a remaining life of 20 years.
(to update the fair value of IP)
After a reorganization on July 1, 2016, the property
PPE 6,500,000 was leased to a third party and reclassified as an
Investment Property 6,500,000 investment property applying Cute’s policy of the
(to transfer the IP to PPE account) fair value model. An independent valuer assessed
the property to have a fair value of ₱ 2,300,000 at
July 1, 2016, which had risen to ₱ 2,340,000 at
Problem H: Diffun, Inc. owns a building purchased
December 31, 2016.
on January 1, 2012 for ₱ 50,000,000. The building
was used as the company’s head office. The ▪ How much is the net amount to be reported in
building has an estimated useful life of 25 years. In Other Comprehensive Income?
2016, the company transferred its head office and
answer = ₱ 350,000
decided to lease out the old building.
Fair Value of IP 2,300,000
Tenants began occupying the old building by the
(initial cost of IP)
end of 2016. On December 31, 2016, the company CA of PPE (1,950,000)
reclassified the building as investment property to [2M – (2M x 0.5/20)]
be carried under cost model. The fair value on the Revaluation (Impairment) 350,000
date of reclassification was ₱ 42,000,000.

▪ How much should be recognized in the 2016 Fair Value, end. 2,340,000
profit or loss as a result of the transfer from Fair Value, beg. 2,300,000
owner-occupied to investment property? Unrealized Gain 40,000
answer = 0 (no gain or loss on reclassification)

Initial Cost of PPE 50,000,000 MCQ 5: Which is incorrect regarding transfers

Accumulated Depreciation (10,000,000) between categories when an entity uses the fair
(50 M ÷ 25 years x 5 years) value model?
Accumulated Impairment 0
Carrying Amount (12/31/16) 40,000,000 - all statements are correct.

Test for Impairment: Module 3: Wasting Assets

Carrying Amount 40,000,000 A. Processes Involved in Wasting Assets
Recoverable Amount 42,000,000
(FV vs. VIU, higher) - acquisition
Impairment Loss 0 - exploration and evaluation
(RA is higher than CA) - development
- extraction
- selling
(Journal Entries: 12/31/16) - restoration
Investment Property 6,500,000
PPE 6,500,000
(to transfer the PPE to IP account)
B. Initital Measurement of Wasting Asset - depletion expense (when there is an outflow of
resources; when the inventory sourced from the
Acquisition Cost XX
wasting asset has already been sold)
Exploration and Evaluation Cost XX
Development Cost XX
Restoration Cost XX
▪ Total Depletable Amount:
Initial Cost of Wasting Asset XX
Initial Cost of Wasting Asset XX
Less: Residual Value (XX)
▪ Exploration Costs:
Depletable Amount XX
− successful effort method (only successful
exploration is capitalized as wasting asset;
unsuccesful = expense) ▪ Depletion Rate:
− full cost method (all exploration is
Depletable Amount XX
capitalized as wasting asset)
Divide: Total Estimated Output ÷ XX
Depletion Rate XX
▪ Development Costs:
− intangible development (includes drilling
costs, tunnels, shafts, and wells; capitalized ▪ Depletion: (Inventory)
as wasting asset, PFRS 6)
Depletion Rate XX
− tangible development (costs to acquire the
Multiply: Units Extracted x XX
PPE like machineries, automobiles,
Depletion XX
equipments, etc.; capitalized as PPE, PAS
16)
▪ Depletion Expense: (COGS)
▪ Restoration Costs: (at PV)
Depletion Rate XX
− computed in its present value, since it is only
Multiply: Units Sold x XX
incurred at the end of the life of the asset.
Depletion Expense (COGS) XX

MCQ 1: The cost of natural resources include: D. Depreciation Expense:

I. Acquisition cost - (with alternative use; movable) use straight-line

II. Exploration costs to the extent that they are method over the useful life of PPE.
capitalized in accordance with an entity’s
- (without alternative use; immovable) if life of mine
accounting policy
is shorter than the useful life, use output method.
III. Intangible development costs
(depreciable amount over estimated capacity)
IV. Restoration or decommissioning costs
- without alternative use; immovable) if useful life is
shorter, use straight-line method.
C. Depletion – the removal, extraction, or
- if problem is silent, check whether the PPE is
exhaustion of a natural resource. It is the
movable or immovable.
systematic allocation of the depletable amount
of a wasting asset over the period the natural
resource is extracted or produced. Depletion
E. Revised Depletion Rate
charge for each period shall form part of
inventory.
- computation of the new depletion rate is
necessary when any of the following are present:

1. additional development cost in the

succeeding year
2. change in estimated output
3. change in residual value