2014 Vol 1 Ch 8 Answers-1

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale 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) (f) (h) (i) (j) (k) (l) (m) (n) (p) (q)

8-2.

(Sebastian Corporation) a. Purchase price Commission to real estate agent Costs of clearing the land (net of timber and gravel recovered amounting to P65,000) Total cost . b.

8-3.

not shown in the financial statements Property, Plant and Equipment Property, Plant and Equipment, until consummation of lease Inventories Inventories Construction in Progress (Inventories) Property, Plant and Equipment Property, Plant and Equipment Property, Plant and Equipment Property, Plant and Equipment not shown, unless leased under finance lease (PPE)

70,000 P 9,100,000

Down payment Market value of shares issued (20,000 x 240) Present value of non-interest bearing note issued (2,000,000 x 2.4869) Total cost of land and building

P 4,000,000 4,800,000

Cost allocated to land (30% x 13,773,800) Cost allocated to building (70% x 13,773,800)

P 4,132,140 P 9,641,660

(Precious Realty Corporation) 1/2/13 Buildings Accumulated Depreciation – Building Held as Investment Property Buildings Held as Investment Property Accumulated Depreciation - Buildings 12/31/13

8-4.

P 8,600,000 430,000

Depreciation Expense – Buildings Accumulated Depreciation - Buildings

(Absolute Corporation) Cost Model (a) Investment Property at December 31, 2013 Land Building

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4,973,800 P13,773,800

8,200,000 4,200,000

200,000

8,200,000 4,200,000

200,000

P 5,000,000

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale Cost Accumulated Depreciation 20,000,000/40 x 3 Total Investment Property

(b)

P20,000,000 1,500,000

Amounts and Accounts Taken to Profit or Loss Rent Revenue Depreciation Expense Administrative and Security Salaries Property Taxes Maintenance Profit

Fair Value Model (a) Investment Property at December 31, 2013 Land Building Total Investment Property (b)

8-5.

Amounts and Accounts Taken to Profit or Loss Rent Revenue Change in Fair Value of Investment Property Land Building Depreciation Expense Administrative and Security Salaries Property Taxes Maintenance Profit

(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

6.

Building Expansion Fund Cash Interest Receivable – Building Expansion Fund

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18,500,000 P23,500,000

P 3,000,000 (500,000) (200,000) (120,000) (340,000) P 1,960,000

P 6,800,000 20,000,000 P26,800,000

P3,000,000 800,000 1,000,000 (500,000) (200,000) (120,000) (340,000) P3,760,000

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

8-6.

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

(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)

1/2/13 Bond Sinking Fund Cash Cash

503,726 503,726

6/30/13 Bond Sinking Fund Cash Cash Interest Income (503,726 x 4%) 12/31/13 Bond Sinking Fund Cash Cash Interest Income 4% ( 503,726 + 523,875) = 41,104 8-7.

523,875 503,726 20,149

544,830

503,726 41,104

(Dorina Company) (a) Entries for 2008 through 2013 7/01/08

Prepaid Life Insurance Cash

120,000

12/31/08 Life Insurance Expense Prepaid Life Insurance

60,000

06/30/09 Prepaid Life Insurance

120,000

120,000

60,000

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

120,000

12/31/09 Life Insurance Expense Prepaid Life Insurance

120,000

06/30/10 Prepaid Life Insurance Cash

120,000

12/31/10 Life Insurance Expense Prepaid Life Insurance

120,000

06/30/11 Prepaid Life Insurance Cash

120,000

12/31/11 Life Insurance Expense Prepaid Life Insurance

120,000

120,000

120,000

120,000

12/31/11 Cash Surrender Value* Life Insurance Expense

120,000

36,000 36,000

06/30/12 Prepaid Life Insurance Cash

120,000

12/31/12 Life Insurance Expense Prepaid Life Insurance

120,000

3/31/13

120,000

120,000

120,000

Cash Surrender Value Life Insurance Expense

13,000

Life Insurance Expense Prepaid Life Insurance

30,000

13,000

30,000

Receivable from Insurance Company Prepaid Life Insurance Cash Surrender Value Gain on Insurance Settlement

4,000,000

30,000 49,000 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) (b) (c)

P10,000,000 x 0.3220 = P3,220,000 Interest Income in 2012 = 12% x P3,220,000 = P386,400 1/1/12 Advances to Officers 3,220,000

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale Prepaid Compensation Expense Cash 12/31/12 Advances to Officers Interest Revenue Compensation Expense Prepaid Compensation Expense 6,780,000/10 = 678,000

6,780,000

10,000,000

386,400 386,400 678,000

678,000

12/31/13 Advances to Officers 432,768 Interest Revenue (3,220,000 + 386,400) x 12% = 432,768 Compensation Expense Prepaid Compensation Expense d.

8-9.

8-10.

07/17/13 Cash (1,520,000 – 60,000) Machinery Group Held For Sale Gain on Sale of Machinery

(Invecargill Ltd.) (a) 08/01/12 Impairment Loss – Equipment Loss from Decline in NRV of Inventory Accumulated Depr- Equipment Inventory (b)

(c)

678,000

678,000

Amortized Cost at December 31, 2013 = 3220,000 + 386,400 + 432,768 = 4,039,168

(Patriarch, Inc.) (a) 12/31/12 Machinery Group Held For Sale Accumulated Depreciation – Machinery Impairment Loss – Machinery Machinery Machinery Tools Machinery Parts (b)

432,768

Assets Held for Sale Accumulated Depreciation Impairment Loss Plant Equipment Inventory Goodwill 02/01/13 Cash (380,000 – 30,000) Assets Held For Sale

1,400,000 1,200,000 200,000 2,200,000 380,000 220,000 1,460,000

1,400,000 60,000

15,000 5,000 15,000 5,000 350,000 95,000 30,000 220,000 160,000 75,000 20,000 350,000 350,000

8-11. 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

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale Accumulated Depreciation Asset Held for Sale Impairment Loss Accumulated Depreciation Equipment

(b)

MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8

C C B A B C C D

MC17 MC18 MC19 MC20 MC21 MC22 MC23 MC24 MC25

B A D D C A D D C

MC26 MC27 MC28 MC29

B D B C

3,500 36,000 2,500 31,500

Dec. 31 Asset Held for Sale Recovery of Previous Impairment

2,500

Dec. 31 Impairment Loss Asset Held for Sale

1,000

70,000

2,500

1,000

MULTIPLE CHOICE MC9 B MC10 A MC11 B MC12 A MC13 D MC14 B MC15 C MC16 A 10M + 20M = 30M Revaluation surplus is credited; transfer is from owner-occupied property. 20,000,000 – 15,000,000 18,000,000 x 39/40 = 17,550,000; depreciation = 18,000,000/40 = 450,000 FV = 20,000,000; gain = 20,000,000 – 18,000,000 = 2,000,000 110,000 – (115,000 – 80,000) = 75,000 9.0M – 1.5M = 7.5M which is lower than carrying amount of 8.0M (9,200,000 – 1,300,000) – 7,500,000 = 400,000 2,000,000 x 0.7972 = 1,594,400 1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 = 1,690,064 100,000 + (200,000 – 160,000) = 140,000 40,000 – (108,000 – 87,000) – 6,000 = 13,000 2,250,000 + 450,000 + 75,000 + 150,000 – 25,000 = 2,900,000 5,000,000/ 5.11 = 978,500

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