2016 Vol 1 Ch 8 Answers - Fin Acc SolMan

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

CHAPTER 8 INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS AND NONCURRENT ASSETS HELD FOR SALE Discussion Question No. 12 (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)

not shown in the financial statements (with Finance Lease Receivable) 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) PROBLEMS

8-1.

(Sebastian Corporation) a.

b.

8-2.

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

P 8,600,000 430,000

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

P 4,000,000 4,800,000 4,973,800 P13,773,800 P 4,132,140 P 9,641,660

(Precious Realty Corporation) 1/2/16

12/31/16 8-3.

70,000 P 9,100,000

Buildings Accumulated Depreciation – Building Held as Investment Property Buildings Held as Investment Property Accumulated Depreciation - Buildings Depreciation Expense – Buildings Accumulated Depreciation - Buildings

8,200,000 4,200,000 8,200,000 4,200,000 200,000 200,000

(Absolute Corporation) Cost Model (a) Investment Property at December 31, 2016 Land Building Cost Accumulated Depreciation 20,000,000/40 x 3 Total Investment Property

87

P 5,000,000 P20,000,000 1,500,000

18,500,000 P23,500,000

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

(b)

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

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

Fair Value Model (a) Investment Property at December 31, 2016 Land Building Total Investment Property (b)

8-4.

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

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

(Adam Company) (a)

(b)

Cost Model Land Held as Investment Property Building Held as Investment Property Accum. Depr. – Building Land Building Accumulated Depreciation – Bldg Held as Investment Property Fair Value Model Land Held as Investment Property Land Revaluation Surplus Building Held as Investment Property Accum. Depreciation-Building Building Accum. Depr. – Building Held as Investment Property Revaluation Surplus 35M/50M = 70%; 42M/70% = 60M 60M – 42M = 18M; 42M – 35M = 7M

8-5.

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

(Raymond Company) 1.

Building Construction Fund Cash Cash

2.

Building Expansion Fund Securities Building Expansion Fund Cash

88

20.0M 50.0M 15.0M 20.0M 50.0M 15.0M 28.0M 20.0M 8.0M 60.0M 15.0M 50.0M 18.0M 7.0M

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

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 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)

1/2/16 Bond Sinking Fund Cash Cash

503,726 503,726

6/30/16 Bond Sinking Fund Cash Cash Interest Income (503,726 x 4%) 12/31/16 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 2013 through 2017 7/01/13 Prepaid Life Insurance Cash

120,000 120,000

89

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

12/31/13 Life Insurance Expense (120,000 X 6/12) Prepaid Life Insurance

60,000 60,000

06/30/14 Prepaid Life Insurance Cash

120,000

12/31/14 Life Insurance Expense Prepaid Life Insurance

120,000

06/30/15 Prepaid Life Insurance Cash

120,000

12/31/15 Life Insurance Expense Prepaid Life Insurance

120,000

06/30/16 Prepaid Life Insurance Cash

120,000

12/31/16 Life Insurance Expense Prepaid Life Insurance

120,000

120,000 120,000 120,000 120,000 120,000 120,000

12/31/16 Cash Surrender Value* Life Insurance Expense

36,000 36,000

06/30/17 Prepaid Life Insurance Cash

120,000

12/31/17 Life Insurance Expense Prepaid Life Insurance

120,000

120,000 120,000

Cash Surrender Value Life Insurance Expense

13,000 13,000

03/31/18 Life Insurance Expense Prepaid Life Insurance

30,000 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, 2016 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 2016 = 12% x P3,220,000 = P386,400

(c)

1/1/16

Advances to Officers Prepaid Compensation Expense Cash

90

3,220,000 6,780,000 10,000,000

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

12/31/16 Advances to Officers Interest Revenue

8-9.

678,000

12/31/17 Advances to Officers Interest Revenue (3,220,000 + 386,400) x 12%

432,768

(b)

432,768

678,000 678,000

Amortized Cost, December 31, 2017 = 3220,000 + 386,400 + 432,768 = 4,039,168

12/31/16 Machinery Group Held For Sale Accumulated Depreciation – Machinery Impairment Loss – Machinery Machinery Machinery Tools Machinery Parts

1,400,000 1,200,000 200,000

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

1,460,000

2,200,000 380,000 220,000 1,400,000 60,000

(Invecargill Ltd.) (a)

(b)

(c) 8-11.

678,000

(Patriarch, Inc.) (a)

8-10.

386,400

Compensation Expense Prepaid Compensation Expense 6,780,000/10

Compensation Expense Prepaid Compensation Expense (d)

386,400

08/01/16 Impairment Loss – Equipment Loss from Decline in NRV of Inventory Accumulated Depr- Equipment Inventory Assets Held for Sale Accumulated Depreciation Impairment Loss Plant Equipment Inventory Goodwill 02/01/17 Cash (380,000 – 30,000) Assets Held For Sale

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

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) Accumulated Depreciation Asset Held for Sale Impairment Loss Accumulated Depreciation Equipment

91

3,500 3,500 36,000 2,500 31,500 70,000

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

(b)

Dec. 31 Asset Held for Sale Recovery of Previous Impairment

2,500

Dec. 31 Impairment Loss Asset Held for Sale

1,000

2,500 1,000

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

C C A B B

MC6 MC7 MC8 MC9 MC10

C C D B A

MC11 MC12 MC13 MC14 MC15

B B A D B

MC16 MC17 MC18

A B A

Problems MC19

B

Land for undetermined future use Vacant building to be leased out under operating lease Total investment property in the consolidated statement

MC20

A

Transfer is from owner-occupied property; excess of fair value over carrying amount (28M-20M and 35M-30M) is credited to revaluation surplus.

P10 million 20 million P30 million

P0

MC21

D

Fair value at time of transfer 20,000,000 – 15,000,000 Carrying value Amount taken to profit or loss

MC22

D

Carrying value (18,000,000 x 39/40) Depreciation expense (18,000,000/40 years)

P17,550,000 P 450,000

MC23

C

Fair value FV Gain (20,000,000 – 18,000,000)

P20,000,000 P 2,000,000

MC24

A

Annual insurance premium Increase in cash surrender value (115,000 – 80,000) Life insurance expense for the year

MC25

C

Carrying amount of the note on June 30, 2015 (2,000,000 x 0.7972) Amortization of discount for six months (1,594,400 x 12% x 6/12) Carrying amount of the note on December 31, 2015

MC26

B

Cash surrender value, January 1 Increase in cash surrender value (200,000 – 160,000) Cash surrender value, December 31

MC27

D

Net annual premium (40,000 – 6,000) Increase in cash surrender value (108,000 – 87,000) Life insurance expense

MC28

B

Bond sinking fund, January 1 Additional investment to the fund Dividend revenue on equity securities investments Interest revenue on debt securities investments Administration costs Bond sinking fund, December 31

92

P20 million 15 million P 5 million

P110,000 35,000 P75,000 P1,594,400 95,664 P1,690,064 P100,000 40,000 P200,000 P34,000 21,000 P13,000 P2,250,000 450,000 75,000 150,000 (25,000) P2,900,000

Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets

MC29

C

Desired accumulated fund 5,000,000/ 5.11 = 978,500 Future amount of annuity in advance at 10% for 4 periods Annual deposit

MC30

D

Asset is measured at the lower of carrying value and fair value less cost to sell (9.0M – 1.5M = 7.5M) or 8.0M

P5,000,000 ÷ 5.11 P978,500 P7,500,000

MC31

D

Selling price less cost to sell (9,200,000 – 1,300,000) Carrying amount (lower) Profit (increase)

P7,900,000 7,500,000 P 400,000

MC32

C

Fair value less cost to sell, December 31 (5,500,000 – 300,000) Fair value less cost to sell, June 30 (4,500,000 – 300,000) Increase in fair value less cost to sell Amount of gain, however, is limited to the previous loss recognized on June 30 (5,000,000 – 4,200,000)

P5,200,000 4,200,000 P1,000,000

93

P 800,000