CHAPTER 8

INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS

AND NONCURRENT ASSETS HELD FOR SALE

PROBLEMS

8-1 Investment Property
(a), (b), (c), (e), (g), (o), (r) with option to or not to report as investment property

(d) not shown in the financial statements
(f) Property, Plant and Equipment
(h) Property, Plant and Equipment, until consummation of lease
(i) Inventories
(j) Inventories
(k) Construction in Progress (Inventories)
(l) Property, Plant and Equipment
(m) Property, Plant and Equipment
(n) Property, Plant and Equipment
(p) Property, Plant and Equipment
(q) not shown, unless leased under finance lease (PPE)

8-2 (Sebastian Corporation)
a. Purchase price P 8,600,000
Commission to real estate agent 430,000
Costs of clearing the land (net of timber and gravel recovered
amounting to P65,000) 70,000
Total cost . P 9,100,000

b. Down payment P 4,000,000
Market value of shares issued (20,000 x 240) 4,800,000
Present value of non-interest bearing note issued
(2,000,000 x 2.4869) 4,973,800
Total cost of land and building P13,773,800

Cost allocated to land (30% x 13,773,800) P 4,132,140
Cost allocated to building (70% x 13,773,800) P 9,641,660

8-3 (Precious Realty Corporation)
1/2/12 Buildings 8,200,000
Accumulated Depreciation Building Held as
Investment Property

4,200,000

Buildings Held as Investment Property 8,200,000
Accumulated Depreciation - Buildings 4,200,000

12/31/12 Depreciation Expense Buildings 200,000
Accumulated Depreciation - Buildings 200,000







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8-4 Absolute Corporation
Cost Model
(a) Investment Property at December 31, 2012
Land P 5,000,000
Building
Cost P20,000,000
Accumulated Depreciation
20,000,000/40 x 3 1,500,000 18,500,000
Total Investment Property P23,500,000

(b) Amounts and Accounts Taken to Profit or Loss
Rent Revenue P 3,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P1,960,000

Fair Value Model
(a) Investment Property at December 31, 2012
Land P6,800,000
Building 20,000,000
Total Investment Property P26,800,000

(b) Amounts and Accounts Taken to Profit or Loss
Rent Revenue P 3,000,000
Change in Fair Value of Investment Property
Land 800,000
Building 1,000,000
Depreciation Expense (500,000)
Administrative and Security Salaries (200,000)
Property Taxes (120,000)
Maintenance (340,000)
Profit P3,760,000

8-5 Raymond Company
1. Building Construction Fund Cash
Cash

2. Building Expansion Fund Securities
Building Expansion Fund Cash

3. Building Expansion Fund Securities
Interest Receivable Building Expansion Fund
Building Expansion Fund Cash

4. Building Expansion Fund Cash
Dividend Income

5. Building Expansion Fund Expenses
Building Expansion Fund Cash




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6. Building Expansion Fund Cash
Interest Receivable Building Expansion Fund
Interest Income

7. Building Expansion Fund Securities
Building Expansion Fund Cash

8. Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities
Interest Income

9. Building Expansion Fund Cash
Dividend Income

10. Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11. Buildings
Building Expansion Fund Cash

12. Cash
Building Expansion Fund Cash

8-6 Cordero Corporation
a. Required Semiannual Deposit
= P15,000,000/ FV of annuity of 1 discounted at 4% for 20 periods
= P15,000,000 / 29.7781 = P503,726

b. 1/2/12
Bond Sinking Fund Cash 503,726
Cash 503,726

6/30/12
Bond Sinking Fund Cash 523,875
Cash 503,726
Interest Income (503,726 x 4%) 20,149

12/31/12
Bond Sinking Fund Cash 544,830
Cash 503,726
Interest Income 41,104
4% ( 503,726 + 523,875) = 41,104

8-7 Dorina Company
a. Entries for 2008 through 2013

7/01/08 Prepaid Life Insurance 120,000
Cash 120,000

12/31/08 Life Insurance Expense 60,000
Prepaid Life Insurance 60,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

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06/30/09 Prepaid Life Insurance 120,000
Cash 120,000

12/31/09 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000

06/30/10 Prepaid Life Insurance 120,000
Cash 120,000
12/31/10 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000

06/30/11 Prepaid Life Insurance 120,000
Cash 120,000

12/31/11 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000

12/31/11 Cash Surrender Value* 36,000
Life Insurance Expense 36,000

06/30/12 Prepaid Life Insurance 120,000
Cash 120,000

12/31/12 Life Insurance Expense 120,000
Prepaid Life Insurance 120,000

Cash Surrender Value 13,000
Life Insurance Expense 13,000

3/31/13 Life Insurance Expense 30,000
Prepaid Life Insurance 30,000

Receivable from Insurance Company 4,000,000
Prepaid Life Insurance 30,000
Cash Surrender Value 49,000
Gain on Insurance Settlement 3,921,000

*The cash surrender value of life insurance may be recognized on the anniversary date
(June 30, 2011 and every June 30 thereafter). No proportionate adjustment, however, is
necessary at year end because there is no actual increase in cash surrender between
anniversary dates.

b. If the president or his heirs were the beneficiaries of the policy, the premiums paid shall
be charged to employees benefit expense and no cash surrender value will be set up by
the company.

8-8 Solidbank

a. P10,000,000 x 0.3220 = P3,220,000
b. Interest Income in 2011 = 12% x P3,220,000 = P386,400
c. 1/1/11 Advances to Officers 3,220,000
Prepaid Compensation Expense 6,780,000
Cash 10,000,000
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12/31/11 Advances to Officers 386,400
Interest Revenue 386,400

Compensation Expense 678,000
Prepaid Compensation Expense 678,000
6,780,000/10 = 678,000
12/31/ Advances to Officers 432,768
Interest Revenue 432,768
(3,220,000 + 386,400) x 12% = 432,768

Compensation Expense 678,000
Prepaid Compensation Expense 678,000

d. Amortized Cost at December 31, 2012 = 3220,000 + 386,400 + 432,768 =
4,039,168
8-9 Patriarch, Inc.
a 12/31/11 Machinery Group Held For Sale 1,400,000
Accumulated Depreciation Machinery 1,200,000
Impairment Loss Machinery 200,000
Machinery 2,200,000
Machinery Tools 380,000
Machinery Parts 220,000

b. 07/17/12 Cash (1,520,000 60,000) 1,460,000
Machinery Group Held For Sale 1,400,000
Gain on Sale of Machinery 60,000

8-10 (Invecargill Ltd.)
a. 08/01/12 Impairment Loss Equipment 15,000
Loss from Decline in NRV of Inventory 5,000
Accumulated Depr- Equipment 15,000
Inventory 5,000

b. Assets Held for Sale 350,000
Accumulated Depreciation 95,000
Impairment Loss 30,000
Plant 220,000
Equipment 160,000
Inventory 75,000
Goodwill 20,000

c. 02/01/13 Cash (380,000 30,000) 350,000
Assets Held For Sale 350,000











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8-11
Correction: Change March 1 to March 31
Cost = 42,000 3/5) = 70,000 Accumulated Depreciation = 70,000 42,000 = 28,000
(a) Mar. 31 Depreciation Expense (14,000 x 3/12) 3,500
Accumulated Depreciation 3,500
Asset Held for Sale 36,000
Impairment Loss 2,500
Accumulated Depreciation 31,500
Equipment 70,000

Dec. 31 Asset Held for Sale 2,500
Recovery of Previous Impairment 2,500

(b) Dec. 31 Impairment Loss 1,000
Asset Held for Sale 1,000


MULTIPLE CHOICE
MC1 C
MC2 C
MC3 B
MC4 A
MC5 B
MC6 C
MC7 C
MC8 D
MC9 B
MC10 A
MC11 B
MC12 A
MC13 D
MC14 B
MC15 C
MC16 A
MC17 B 10M + 20M = 30M
MC18 A Revaluation surplus is credited; transfer is from owner-occupied property.
MC19 D 20,000,000 15,000,000
MC20 D 18,000,000 x 39/40 = 17,550,000; depreciation = 18,000,000/40 = 450,000
MC21 C FV = 20,000,000; gain = 20,000,000 18,000,000 = 2,000,000
MC22 A 110,000 (115,000 80,000) = 75,000
MC23 D 9,000,000 1,500,000 = 7,500,000 which is lower than carrying amount of
P8,000,000.
MC24 D (9,200,000 1,300,000) 7,500,000 = 400,000
MC25 C 2,000,000 x 0.7972 = 1,594,400
1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 = 1,690,064
MC26 B 100,000 + (200,000 160,000) = 140,000
MC27 D 40,000 (108,000 87,000) 6,000 = 13,000
MC28 B 2,250,000 + 450,000 + 75,000 + 150,000 25,000 = 2,900,000
MC29 C 5,000,000/ 5.11 = 978,500