Chapter # 11

Investment Property

TRUE OR FALSE

1. If an entity elects to classify property held under an operating lease as investment property, the only measurement
basis available is the fair value model for all of its investment property. True
2. If, on acquisition, it is not possible to determine fair value reliably on a continuing basis, then the investment property
shall be measured using the cost model under PAS 16 Property, Plant, and Equipment until disposal. True
3. It is possible for an entity to hold investment property, some of which is measured at fair value and some under the
cost model. True
4. Investment property includes those properties held by the owner or the lessee under a finance lease for use in
production or supply of goods and services or for administrative purposes. False
5. In cases where the fair value model is not used, transfers between classifications are made at the carrying value: the
lower of cost and net realizable value if inventories or cost less accumulated depreciation and impairment losses if
property, plant, and equipment. True
6. When a property under construction is completed and transferred to investment property to be carried at fair value,
the measurement to fair value is recognized in profit or loss. True
7. If it is not probable to apportion the property and only an insignificant portion is held for use in operations, the entire
property is accounted as investment property. Precisely what is meant by “insignificant” is not defined and is left to
judgement. However, in other Standards, indications are that two percent (2%) may be an applicable level. True
8. If the fair value model is selected for land held for capital appreciation, after initial recognition, the whole class of
investment property where that property belongs shall be measured at fair value. Buildings held for rental to others
may be measured subsequently using the cost model. False
9. A property that is being constructed or developed for future use as investment property should be initially classified
as property, plant, and equipment and reclassified to investment property upon completion. False
10. If an entity uses the fair value model, annual depreciation is computed and recognized in profit or loss. False

MULTIPLE CHOICE: THEORY QUESTIONS

1. Which of the following would not be classified as Investment Property?

a. Land held for long term capital appreciation rather than for short term sale in the ordinary course of business
b. Land held for currently undeterminable future use
c. Land held for short-term sale in the ordinary course of business
d. Building owned by the entity (or held by the entity under finance lease) and leased out under one or more
operating leases
2. An investment property shall be measured initially at
a. cost.
b. cost less accumulated impairment losses.
c. depreciable cost less accumulated impairment losses.
d. fair value less accumulated impairment losses.
3. The following are examples of investment property, except
a. land held for currently undetermined future use.
b. property that is being constructed or developed for use as an investment property.
c. existing investment property that is being redeveloped for continuing use as investment property.
d. property occupied by the company officers.
4. Which of the following statements best describes “owner-occupied property” according to PAS 40 Investment
Property?
a. Property held for sale in the ordinary course of business
b. Property held for use in production and supply of goods or services or for administrative purposes
c. Property held to earn rentals
d. Property held for currently undetermined future use
5. Under PAS 40 Investment Property, which of the following additional disclosures must be made when an entity
chooses the cost model as its accounting policy for investment property?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property

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6. What would be a valid reason for transfers from investment property to property, plan, and equipment?
a. When there is change in use
b. Based on the accountant’s discretion
c. When the entity adopts the fair value model
d. When there is a decrease in the fair value of the asset
7. An investment property is derecognized when
a. it is disposed to a third-party
b. it is permanently withdrawn from use
c. no future economic benefits are expected from its disposal
d. in all these cases
8. Which of the following would be part of the cost of investment property?
a. Start-up costs
b. Start-up costs that are necessary to bring the property to the condition necessary for it to be capable of
operating in the manner intended by the management
c. Operating losses incurred before the investment property achieves the planned level of occupancy
d. Abnormal amounts of wasted material, labor or other resources incurred in constructing or developing the
property
9. Which of the following properties fall under the definition of investment property and therefore within the scope of
PAS 40 Investment Property?
a. Land held as future site of warehouse
b. Property occupied by an employee of the entity
c. Property being constructed on behalf of third parties
d. A building owner by an entity and leased out under operating leases
10. When reclassification is made from owner-occupied property to investment property that will be carried at fair value,
any excess of the fair value over the carrying amount at the date of transfer is
a. ignored.
b. recognized as gain on the income statement.
c. credited to asset revaluation surplus.
d. recorded as a credit to liability account.
11. 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 for the year.
b. general reserve in the shareholder’s equity.
c. valuation reserve in the shareholder’s equity.
d. none of the above.
12. Which of the following would be appropriately classified as investment property?
a. Property held for future use as owner-occupied property
b. Property held for future development and subsequent use as owner-occupied property
c. Property occupied by employees
d. Property for rental purposes
13. When an item of asset is transferred to and from the classification investment property, carried using the cost model,
the measurement basis at the date of transfer is the
a. original cost.
b. fair market value.
c. carrying amount.
d. recoverable amount.
14. Which of the following is not a characteristic of an investment property?
a. A land/or a building
b. Held by an owner or a lessee under finance lease
c. Held to earn rentals or for capital appreciation
d. Always accounted for using fair value model
15. Which of the following is true for property that comprises a portion that is held to earn rentals or for capital
appreciation and another portion that is held for use in production or supply or goods or services or for
administrative purposes?
I. If the portions could not determined separately, the property is owner occupied property only if an insignificant
portion is held for use in the production or supply or goods or services or for administrative purposes.
II. If the production could be determined separately (or leased out separately under finance lease), an entity
accounts for the portions separately.

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 a. I only
b. II only
c. Both I and II
d. Neither I nor II
16. 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.
17. Under the cost model, an investment property is carried on each reporting date at
a. fair value.
b. cost less accumulated depreciation.
c. cost less accumulated impairment losses.
d. cost less accumulated depreciation and impairment losses.
18. A subsidiary lease its office unit from its parent company€ The parent appropriately classifies this office unit as
investment property in its statement of financial position. in the consolidated financial statements, how should this
office unit be classified?
a. Property, Plant and Equipment
b. Investment Property
c. Inventories
d. Eliminated and not presented.
19. Investment property shall be measured at each reporting period using
a. the cost or fair value model.
b. the cost or revaluation model.
c. the fair value or revaluation model.
d. fair value or OCI model.
20. An entity that selects the cost model shall measure all of its investment property in accordance with PAS 16's
requirements for that model, except
a. those classified as held-for-sale in accordance with PFRS 5 Non-Current Assets Held for Sale and Discontinued
Operations.
b. those properties held for undetermined purpose.
c. a hotel owned by the entity and for which ABC Inc. provides security services for its guests' belongings.
d. a vacant building to be leased out under an operating lease.

MULTIPLE CHOICE: PROBLEMS

A. The following properties are in the list of Admiral Company

 Warehouse that serves as storage of merchandise inventory — P300,000
 Farm land with potential for rice planting in the future. Admiral is yet to decide on the final purpose of
the property whether for farming or for sale to generate profit- P 1,500,000
 Land and building used as office building – P 3,000,000
 Office unit leased to a subsidiary P 1,200,000
 Machinery and equipment leased out by Admiral under an operating lease — P 500,000
 Construction in progress (building) to be leased out once finished — P 7,500,000
 Land in Muntinlupa City situated beside a mall being constructed acquired for potential capital
appreciation — P 500,000
 Commercial units being constructed on behalf of a client — P 1,000,000
 A condominium building with ten (10) units valued at P100,000 per unit, half is occupied by the company
as office of executives while the remaining units are being leased out to unrelated parties — P 1,000,000

1) How much is the total investment property to be classified and presented in the statement financial position of
Admiral Company?
a. P9.2 million
b. P9.7 million
c. P11.2 million
d. P11.7 million

2) How much of the above properties are to be classified as property, plant and equipment?
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 a. P3.8 million
b. P4.3 million
c. P4.8 million
d. P5.3 million
B. Mandarin Company has a mid-rise condominium building in Paranaque City. The building has 10 units and was
constructed for a total cost of P5,000,000 The purpose of this condominium building is to serve as residence of its
employees, who work in Okada Hotel, which is also owned by Mandarin, the following information IS available:
 3 units – occupied by executives rent free
 2 units – occupied by middle managers and pay rent at below market rent
 5 units – occupied by rank-and-file employees and pay market rate rent for the units occupied
3) How much should be classified as investment property and owner-occupied, respectively?
a. P5.0 million and P0
b. P1.5 million and P3.5 million
c. P2.5 million and P2.5 million
d. P0 and P5.0 million
C. Peninsula Enterprise owns the properties below, which it leases out (operating lease) to the following:
__Asset _____ Cost ___ Renter_
Building P500,000 Subsidiary
Machinery 350,000 Subsidiary
Condominium Unit 700,000 Employees
Land 800,000 Associate

4) In Peninsula’s consolidated statement of financial position, how much would be presented as investment
property?
a. P800,000
b. P1,300,000
c. P2,000,000
d. P2,350,000

D. A building previously occupied by Grand Company with a cost of P10 million and an accumulated depreciation of P5.5
million is reclassified as investment property. At the time of reclassification, the building has a fair value of P5 million.

5) Using the fair value model, upon reclassification to investment property, at what amount should Grand record the
investment property and what amount of gain is recognized in profit or loss, respectively?
a. P4.5 million and P500,000
b. P5 million and P0
c. P5 million and P500,000
d. P4.5 million and P0
E. Micro Company acquired a building on January 1,2021 for P270,000. At that date, the building had a useful life of 15
years. At December 31,2021, the fair value of the building was P360,000. The building was classified as an investment
property and accounted for under the cost model.

6) According to PAS 40 Investment Property, what amounts should be carried in the statement of financial position
and recognized in profit or loss?
Carrying amount in the Recognized in Profit or Loss
Statement of Financial Position
a. P360,000 No gain/loss
b. P270,000 No gain/loss
c. P360,000 Gain of P108,000
d. P252,000 Expense of P18,000

F. The Niagara Company owns three properties, which are classified as investment properties according to PAS 40.
Details of the properties are given below:
Initial Cost FV at 12/31/20 FV at 12/31/21
Property (1) P250,000 P220,000 P240,000
Property (2) 355,000 305,000 288,000
Property (3) 350,000 375,000 365,000

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 Each property was acquired in 2017 with a useful life of 10 years. The company’s accounting policy is to use the fair
value model for investment properties.

7) What is the gain(loss) recognized in profit or loss for the year 2021?
a. P62,000 loss
b. P27,000 loss
c. P20,000 loss
d. P7,000 gain
G. DEF Company owns land and building being used for its operations and administrative functions. The land and
building are carried in its books using the cost model and have the following data at January 1,2021.
Land Building
Cost 10,000,000 20,000,000
Accumulated depreciation 13,500,000
Fair Value 14,000,000 9,000,000

On this date, the company vacated the old building and occupied a newly constructed one located in the commercial
area of the Central Business District. The old building is then reclassified as investment property using the fair value
model. The company uses fair value in all of its other investment property.

8) What is the amount of fair value gain reported in profit or loss resulting from the reclassification from owner
occupied to investment property due to change in use of the property?
a. P0
b. P2,500,000
c. P4,000,000
d. P6,500,000

H. The Lancer Company has a single investment property, which had original cost of P580,000 on January 1,2018. At
December 31,2020, its fair value was P600,000 and at December 31,2021, it had fair value of P590,000. On
acquisition, the property had a useful life of 40 years.

9) According to PAS 40 Investment Property, what should be the expense recognized in Lancer’s profit or loss for
the year ending December 31,2021 under each of the fair value model and the cost model?
Fair Value Cost Model
a. P14,750 P14,500
b. P10,000 P14,500
c. P14,500 P10,000
d. P10,000 P14,750

I. Safe Ladies’ Home, Inc. owns a three-storey building along Asturias. The whole building, divided into smaller rooms, is
being rented out to various lady bed spacers comprising of students, reviewees and employees. The building cost is
P5,000,000 with accumulated depreciation of P1,500,000 as of December 31,2021. On this date, the building has a fair
value of P5,500,000.

A new building constructed by another entity adjacent to the building of Safe Ladies’ Home, Inc. during 2021. Safe
Ladies’ Home rented the fourth floor of the new building under operating lease and subleased the whole area to
various bed spacers. At December 31,2021, the fair value of this fourth floor is P2,000,000 and Safe Ladies’ Home
chose to report it as an investment property.

10) At what total amount should Safe Ladies’ Home report its investment property at December 31,2021?
a. P0
b. P3,500,000
c. P5,500,000
d. P7,500,000

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J. Iron Company has the following property items at December 31, 2021:
Property Item Acquisition Cost/Carrying Value Fair Value at 12/31/21
Land which at the date of acquisition is not
Intended for any specific use in the future P1,000,000 P1,800,000
Land Held for future plant site 2,000,000 2,600,000
Building in process of construction intended
to be leased under operating lease 8,000,000 8,000,000
Building being used by the entity for its operation 2,500,000 3,000,000
Equipment being leased under operating leases 1,500,000 1,050,000
Land and Building acquired under finance leases
being used by the entity as its general & administrative purposes 9,200,000 9,900,000
Building (30% of the space is used in operations and
the remainder is being leased to others under operating leases) 12,500,000 18,000,000

11) Assuming that the company adopted the PAS 40 Investment Property using the fair value model, what is the
correct total of investment property reported at December 31, 2021?
a. P9,800,000
b. P22,400,000
c. P23,450,000
d. P27,800,000

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