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FAR OCAMPO/OCAMPO
FAR.3208-Investment Property MAY 2022

DISCUSSION PROBLEMS
1. Investment property is property (land or a building—or c. Both a and b.
part of a building—or both) held (by the owner or by d. Neither a nor b.
the lessee as a right-of-use asset)
a. To earn rentals or for capital appreciation or both. 5. Which of the following is (are) incorrect if the entity
b. For use in the production or supply of goods or provides ancillary services to the occupants of a
services or for administrative purposes. property held by the entity?
c. For sale in the ordinary course of business. a. The appropriateness of classification as investment
d. Any of these. property is determined by the significance of the
services provided.
2. In the normal course of its business, a real estate b. If the services provided are relatively insignificant
developer purchases the following raw land: component of the arrangement as a whole (for
• Land A - The entity has plans to construct and instance, the building owner supplies security and
develop the parcel of land as a residential maintenance services to the lessees), then the
subdivision for sale as approved by the entity’s entity may treat the property as investment
Board of Directors. The preparation of the master property.
plan, detailing the plans as residential property, c. Where the services provided are more significant
has commenced but the entity intends to start the (such as in the case of an owner-managed hotel),
physical construction activities (e.g. excavation) the property should be classified as investment
two years from the government approval of the property.
master plan. d. All the statements are correct.
• Land B –The entity has plans to construct and
develop the parcel of land as a residential 6. Solano Company is considering the appropriate
subdivision for sale as approved by the entity’s classification of the following items:
Board of Directors. The preparation of the master
Land held for long-term capital
plan, detailing the plans, has not commenced.
appreciation P15,000,000
• Land C - The entity intends to develop the land
Land held for undecided future use 30,000,000
into a commercial center for lease but preparation
Building leased out under an operating
of master plan has not commenced and the entity
lease 75,000,000
does not intend to commence the physical
Building leased out under a finance lease 45,000,000
construction activities within the year.
Vacant building held to be leased out
• Land D - The entity purchased the parcel of land to
under an operating lease 8,000,000
establish presence in the location but does not
Property held for use in the production
have any concrete plans on how to develop the
or supply of goods or services 6,000,000
property.
Property held for administrative
In accordance with PIC Q&A No. 2018-11, which land purposes 9,000,000
should be classified as investment property? Property held for sale in the ordinary
a. Land A, B, C and D c. Land B and C course of business 2,000,000
b. Land B, C and D d. Land C and D Property held in the process of
construction or development for sale 3,000,000
3. Which of the following is (are) incorrect if the owner Property held for future use as owner-
uses part of the property for its own use, and part to occupied property 4,000,000
earn rentals or for capital appreciation? Property held for future development
a. If the portions can be sold or leased out and subsequent use as owner-
separately, they are accounted for separately. occupied property 4,400,000
b. If the portions can be sold or leased out Property occupied by employees 3,600,000
separately, the part that is rented out is Owner-occupied property awaiting
investment property. disposal 750,000
c. If the portions cannot be sold or leased out Property that is being constructed or
separately, the property is investment property developed for use as an investment
even if the owner-occupied portion is significant. property 12,000,000
d. All of the above Existing investment property that is
being redeveloped for continuing use
4. Which statement is correct regarding separation of as investment property 24,000,000
property and classification as investment property in Building held for administrative purposes
accordance with PIC Q&A No. 2017-10? and leased out under operating lease
a. To separately account for the portions of a (60% is for administrative purposes) 15,000,000
property, the property must be in a state and Building leased out under an operating
condition to enable it to be disposed of separately lease (the entity supplies security and
at the end of the reporting period. maintenance services to the lessees) 30,000,000
b. If the property requires sub-division before the
How much is the total amount that would normally be
portions could be disposed of separately, then
reported as investment property?
those parts are not accounted for separately until
a. P200 million c. P170 million
such sub-division occurs.
b. P188 million d. P158 million

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7. Quirino, Inc. and its subsidiaries have provided you, Use the following information for the next two questions.
their PFRS specialist, with a list of the properties they
An entity acquired a building for the purpose of leasing it on
own:
Jan. 1, 2022 for P50 million. At that date the building had a
• Land held by Quirino, Inc. for undetermined future
useful life of 40 years. At Dec. 31, 2022 the fair value of the
use, P5,000,000.
building was P51 million.
• A vacant building owned by Quirino, Inc. and to be
leased out under an operating lease, P20,000,000.
11. If the entity chooses the fair value model, the entity
• Property held by a subsidiary of Quirino, Inc., a
should
real estate firm, in the ordinary course of its
a. Recognize depreciation of P1.25 million in its 2022
business, P30,000,000.
profit or loss.
• Property held by Quirino, Inc. for use in
b. Recognize the building in its Dec. 31, 2022
production, P1,000,000.
statement of financial position at P48.75 million.
• A hotel owned by Sugo, Inc., a subsidiary of
c. Recognize gain of P1 million in its 2022 profit or
Quirino, Inc., and for which Sugo, Inc. provides
loss.
security services for its guests’ belongings,
d. Do both a and b.
P50,000,000.
• A building owned by Quirino, Inc. being leased out
12. If the entity chooses the cost model, the entity should
to Status, Inc, a subsidiary of Quirino, Inc.,
a. Recognize the building in its Dec. 31, 2022
P20,000,000.
statement of financial position at P51 million.
How much will be reported as investment properties in b. Not depreciate the building.
Quirino, Inc. and its subsidiaries consolidated financial c. Disclose fair value of the building.
statements? d. Do both a and b.
a. P75,000,000 c. P95,000,000
b. P25,000,000 d. P45,000,000 13. PAS 40 requires all entities to
a. Measure the fair value of investment property.
8. In accordance with PIC Q&A No. 2017-6, which of the b. Measure the fair value of investment property on
following collector’s items (e.g. paintings, rare items, the basis of a valuation by an independent valuer
vintage items, classic cars) can be accounted for in who holds a recognized and relevant professional
accordance with PAS 40? qualification.
a. Collector’s items for administrative or aesthetic c. Both a and b.
purposes. d. Neither a nor b.
b. Collector’s items for short-term investment
purposes. The entity also trades these collector’s 14. The carrying amount of an item of investment property
items in the ordinary course of business. shall be derecognized
c. Collector’s items for long-term investment purposes. a. On disposal.
The entity does not trade these collector’s items in b. When it is permanently withdrawn from use and no
the ordinary course of business. future economic benefits are expected from its
d. None of these. disposal.
c. Either a or b.
9. An owned investment property shall be recognized as d. Neither a nor b.
an asset when, and only when: (a) it is probable that
future economic benefits that are associated with the 15. The Conehead Corp. purchased an investment property
investment property will flow to the entity; (b) the cost on Jan. 1, 2018 for a cost of P220,000. The property
of the investment property can be measured reliably. had a useful life of 40 years and at Dec. 31, 2021 had a
This principle applies to fair value of P300,000. On Dec. 31, 2022 the property
a. Costs incurred initially to acquire an investment was sold for P290,000 incurring disposal costs of
property. P10,000. Conehead uses the cost model to account for
b. Costs incurred subsequently to add to, replace part investment properties.
of, or service a property.
What is the gain or loss to be recognized in profit or loss
c. Both a and b.
for the year ended Dec. 31, 2022 regarding the disposal
d. Neither a nor b.
of the property?
a. P97,500 gain c. P20,000 loss
10. Which statement is incorrect regarding the use of the
b. P87,500 gain d. P10,000 loss
fair value model?
a. After initial recognition, an entity shall measure all
of its investment property at fair value.
16. Transfers to, or from, investment property should only
b. A gain or loss from a change in the fair value of
be made when there is a change in use, evidenced by:
investment property shall be recognized in profit or
I. Commencement of owner-occupation
loss for the period in which it arises.
II. Commencement of development with a view to
c. There is a rebuttable presumption that an entity
sale
can reliably measure the fair value of an
III. End of owner-occupation
investment property on a continuing basis.
IV. Commencement of an operating lease to another
d. A change from the fair value model to the cost
party
model likely results in a more relevant
presentation. a. I, II, III and IV c. I and IV only
b. I, II and IV only d. IV only

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17. Which of the following will most likely result to Use the following information for the next two questions.
reclassification?
Cute Corporation owns the following properties at Jan. 1,
a. An entity decided to dispose of an investment
2022:
property without development.
b. An entity begins to redevelop an existing
Property A
investment property for continued future use as
investment property. An office building used by Cute for administrative purposes
c. Both a and b. with a depreciated historical cost of P2 million. At Jan. 1,
d. Neither a nor b. 2022 it had a remaining life of 20 years. After a re-
organization on July 1, 2022, the property was leased to a
18. When an entity uses the cost model, transfers between third party and reclassified as an investment property
categories (investment property, owner-occupied applying Cute’s policy of the fair value model. An
property and inventories) independent valuer assessed the property to have a fair
a. Do not change the carrying amount of the property value of P2.3 million at July 1, 2022, which had risen to
transferred. P2.34 million at Dec. 31, 2022.
b. Do not change the cost of the property for
measurement purposes. Property B
c. Do not change the cost of the property for Another office building sub-leased to a subsidiary of Cute.
disclosure purposes. At Jan. 1, 2022, it had a fair value of P1.5 million which
d. All of the above. had risen to P1.65 million at Dec. 31, 2022. At Jan. 1,
2022 it had a remaining life of 15 years.
19. Which statement is incorrect regarding transfers
between categories when an entity uses the fair value Determine the amounts that should be recognized by the
model? entity in its separate financial statements in respect of
a. For a transfer from investment property to owner- these properties for the year ended Dec. 31, 2022 for the
occupied property or inventories, the fair value at following:
the change in use is the 'cost' of the property
under its new classification. 22. Net amount in profit or loss
b. For a transfer from inventories to investment a. P540,000 c. P190,000
property, any difference between the fair value at b. P490,000 d. P140,000
the date of transfer and its previous carrying 23. Net amount in other comprehensive income
amount should be recognized in profit or loss for a. P500,000 c. P300,000
the period. b. P350,000 d. Nil
c. For a transfer from owner-occupied property to
investment property, PAS 16 should be applied up 24. An entity shall disclose:
to the date of reclassification. Any difference a. Whether it applies the fair value model or the cost
arising between the carrying amount under PAS 16 model.
at that date and the fair value is dealt with as a b. The existence and amounts of restrictions on the
revaluation under PAS 16. realizability of investment property or the
d. None, all the statements are correct. remittance of income and proceeds of disposal.
c. Contractual obligations to purchase, construct or
develop investment property or for repairs,
Use the following information for the next two questions. maintenance or enhancements.
Diffun, Inc. owns a building purchased on Jan. 1, 2018 for d. All of these.
P50 million. The building was used as the company’s head
office. The building has an estimated useful life of 25 25. An entity shall disclose the amounts recognized in
years. In 2022, the entity transferred its head office and profit or loss for:
decided to lease out the old building. Tenants began a. Rental income from investment property.
occupying the old building by the end of 2022. On Dec. 31, b. Direct operating expenses (including repairs and
2022, the entity reclassified the building as investment maintenance) arising from investment property
property. The fair value on the date of reclassification was that generated rental income during the period.
P42 million. c. Direct operating expenses (including repairs and
maintenance) arising from investment property
20. If the entity uses the cost model, how much should be that did not generate rental income during the
recognized in the 2022 profit or loss as a result of the period.
transfer from owner-occupied to investment property? d. All of these.
a. P8,000,000 c. P500,000
b. P2,000,000 d. Nil 26. Regardless of the model used, an entity shall disclose
a. The depreciation methods used.
21. If the entity uses the fair value model, how much b. The amount of impairment losses recognized, and
should be recognized in the 2022 profit or loss as a the amount of impairment losses reversed, during
result of the transfer from owner-occupied to the period.
investment property? c. Net gains or losses from fair value adjustments.
a. P8,000,000 c. P500,000 d. Reconciliation between the carrying amounts of
b. P2,000,000 d. Nil investment property at the beginning and end of
the period.

J - end of FAR.3208 - J

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