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QUIZ - Intangible asset & Investment property

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. Directly attributable expenditures related to investment property include

a. Professional fees for legal services, property transfer taxes and other transaction
costs.
b. Start up costs.
c. Initial operating losses incurred before the investment property achieves the
planned level of occupancy.
d. Abnormal amounts of wasted material, labor and other resources incurred in
constructing or developing the property.

2. A transfer from investment property carried at fair value to owner- occupied property shall be accounted
for at
a. Fair value, which becomes the deemed cost for subsequent accounting
b. Carrying amount
c. Historical cost
d. Fair value less cost to sell

3. Subsequent to initial recognition, the investment property shall be measured at

a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment loss
c. Revalued amount
d. Either fair value or cost less any accumulated depreciation and any accumulated
impairment losses

4. The residual value of an intangible asset shall be presumed to zero, unless

I. There is a commitment by a third party to purchase the asset at the end of its useful life.

II. There is an active market for the asset and residual value can be determined by reference to that
market and it is probable that such market will exist at the end of the asset’s useful life.
a. I only c. Both I and II
b. II only d. Neither I nor II

5. If owner-occupied property is transferred to investment property that is to be carried at fair value, the
difference between the carrying amount of the property and its fair value shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in equity
d. Accounted for as revaluation of property, plant and equipment.

6. Which statement is correct if the property is partly investment and partly owner-occupied?
I. If the investment and owner-occupied portions could be sold or leased out separately, the portions
shall be accounted for separately as investment property and owner-occupied property.
II. If the investment and owner-occupied portions could not be sold or leased out separately, the
property is investment property if only an insignificant portion is held for manufacturing or
administrative purposes.
a. I only c. Both I and II
b. II only d. Neither I nor II

7. A brand name that was acquired separately shall initially be recognized at

a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost

8. The factors that need to be considered in determining the useful life of an intangible asset include all of
the following, except
a. Technical obsolescence
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b. Expected action of competitors

c. Expected usage of the asset by the entity
d. Residual value

9. Gain or loss from disposal of investment property shall be determined as the difference between the
a. Net disposal proceeds and carrying amount of the asset and shall be recognized
in profit or loss.
b. Net disposal proceeds and carrying amount of the asset and shall be recognized
in equity.
c. Net disposal proceeds and carrying amount of the asset and shall be recognized
in retained earnings.
d. Net disposal proceeds and fair value of the asset and shall be recognized in profit
or loss.

10. Which statement is correct concerning amortization of intangible assets?

I. Intangible assets with limited or finite life are amortized over their useful life.
II. Intangible assets with indefinite life are not amortized but are tested for impairment at least annually.
a. I only c. Both I and II
b. II only d. Neither I nor II

11. If an inventory is transferred to investment property that is to be carried at fair value, the remeasurement
to fair value is
a. Included in profit or loss
b. Included in equity
c. Included in retained earnings
d. Accounted for as revaluation of inventory

12. Which is correct concerning the criterion of identifiability of an intangible asset?

I. An intangible asset is identifiable when it is separable, meaning, the asset could be sold,
transferred, licensed, rented or exchange.
II. An intangible asset is identifiable when it arises from contractual or legal right.
a. I only c. Both I and II
b. II only d. Neither I nor II

13. It is defined as property (land or building or part of building or both) by an owner or finance lessee to
earn rentals or for capital appreciation or both.
a. Investment property c. Mining company
b. Owner-occupied property d. Rental company

14. When the entity uses the cost model, transfer between investment property, owner-occupied property
and inventory shall be accounted for at
a. Fair value c. Cost
b. Carrying amount d. Assessed value

15. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset
b. It is probable that it will generate future economic benefits
c. It is available for use
d. The cost can be identified with reasonable certainty

16. Jelly Company acquired a real property for speculation purpose with the intention of selling it at a higher
price in the long term. The property was acquired at cash price of P3,000,000. The property has
P100,000 unpaid real property tax assumed by Jelly Company. In addition, the company also paid the
following transaction costs: broker’s commission of P20,000 and registration cost of P35,000.

How much should Jelly Company record the Investment Property?

a.) P3,155,000
b.) P3,100,000
c.) P3,055,000
d.) P3,000,000
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17. The Emila Company purchased an investment property on 1 January 20X5 for a cost of 220,000. The
property had a useful life of 40 years and at 31 December 20X7 had a fair value of 300,000. On 1
January 20X8 the property was sold for net proceeds of 290,000. Emila uses the cost model to account
for investment properties. What is the gain or loss to be recognized in profit or loss for the year ended
31 December 20X8 regarding the disposal of the property?
a. 86,500 gain
b. 81,000 gain
c. 10,000 loss
d. 70,000 gain

18. On January 1, 2018, Jerome Company acquired a building to be held as investment property in a
remote location for P5,000,000. After initial recognition, the entity measured the investment property
using cost model because the fair value cannot be measured reliably.

On December 31, 2018, management assessed the building’s useful life at 50 years from the date of
acquisition and presumed the residual value to be nil because the fair value cannot be determined
reliably.

At year year-end, the entity declined an unsolicited offer to purchase the building for P6,500,00. This is a
one-time offer that is unlikely to be repeated in the foreseeable future.
What is the carrying amount of the building on December 31, 2018?
a.5,000,000
b.6,500,000
c.6,370,000
d.4,900,000

19. Oz Company acquired an investment property with an installment price of P2, 400,000. The acquisition
of the property requires a down payment of 20% and a non-interest bearing note payable at the end of
each year for five years. The prevailing market rate of interest for similar instrument is 12%. The present
value of factor of annuity of 12% for four periods is 3.605. Oz Company incurred transaction costs
amounting to P50,000 for the property.

What is cost of acquiring the property?

a.) P1,862,400
b.) P1,914,320
c.) P2,400,000
d.) P2,450,000

20. On January 2, 2020, Sintas Corporation has an investment property that was carried at fair value with a
carrying amount of P2,500,000 (historical cost, P,2,400,000). As of December 31, 2020, the fair market
value of the property is P2,600,000. On December 31, 2020, the fair market value of the property was
P2,800,000. On this date, Sintas Corporation decided to reclassify/transfer the property to inventory.

On the date of transfer, what amount should the inventory be valued?

a.) P2,400,000
b.) P2,500,000
c.) P2,600,000
d.) P2,800,000

21. Kaila Company’s accounting policy with respect to investment properties is to measure them at fair
value at the end of each reporting period. One investment property was measured at P8,000,000 on
December 31, 2018. The property had been acquired on January 1, 2018 for a total of P7,600,000
made up of P6,900,000 paid to the vendor, P300,000 paid to the local authority as a property transfer
tax and P400,000 paid to professional advisers. The useful life of the property is 40 years.

What is the gain to be recognized for 2018 in respect of investment property?

a. 400,000
b. 700,000
c. 800,000
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d. 590,000

22. Louie Company, a real estate entity, has a building with a carrying amount of P20,000,000 on
December 31, 2020. The building is used as offices of the entity’s administrative staff. On December 31,
2020, the entity intended to rent out the building to independent third parties. The staff will be moved to
a new building purchased early in 2020. On December 31, 2020, the original building had a fair value of
P35,000,000. On December 31, 2020, the entity also had land that was held in the ordinary course of
business. The land had a carrying amount of P10,000,000 and fair value of P15,000,000 on December
31, 2020. On such date, the entity decided to hold the land for capital appreciation. The accounting
policy is to carry all investment property at fair value. On December 31, 2020, what amount should be
recognized in revaluation surplus and profit or loss, respectively?

a. 5,000,000 and 15,000,000

b. 15,000,000 and 0
c. 15,000,000 and 5,000,000
d. 5,000,000 and 0

23. Angel Company purchased the net assets of another entity for P6,000,000. On the date of the
transaction, the acquire had P2,000,000 of liabilities. The assets of the acquire at fair value were
P3,000,000 for current assets and P6,000,000 for noncurrent assets.

How should the purchase be accounted for?

a. Retained earnings should be credited for P1,000,000.
b. Gain on bargain purchase should be credited for P1,000,000.
c. The current assets should be reported at P3,000,000 and the noncurrent assets at P5,000,000.
d. Negative goodwill should be credited for P1,000,000.

24. Company C is a supplier of industrial products, in 2018, the company purchased a plot of land on the
outskirts of a major city. The land was originally acquired at a cost of P 15,000,000. The area has mainly
low-cost public housing and very limited public transport facilities. The national government has plans to
develop the area as an industrial park in five years’ time and land is expected to greatly appreciate in
value if the government proceeds with the plan. Company C’s management has not decided what to do
with the property. On December 31,2018, the property has a current fair value of P 15,400,000.

How should the company classify the property in its December 31,2018 statement of financial position?
a. As land at its historical cost of P 15,000,000
b. As land at its current fair value of P 15,400,000
c. As investment property at its current fair value of P15,400,000
d. As inventory at the lower of cost of P 15,000,000 or current fair value of P15,400,000

25. At the beginning of the current, Angel Company acquired an intangible asset for P3,000,000. The
intangible asset has an estimated useful life of 10 years.
At the current, the intangible asset was evaluated to determine whether it was impaired. On same date,
the fair value less cost of disposal of intangible asset is P2,000,000.
The asset is expected to generate future cash flows of P300,000 annually for the remaining 9 years.

The appropriate discount rate is 5%. The present value of an ordinary annuity of 1 at 5% for nine periods
is 7.11.

What is the impairment loss to be recognized for the current year?

a. 700,000
b. 567,000
c. 867,000
d. 0

26. At the beginning of the year 2020, Junk Company has an investment property acquired at a cost of
P14,000,000 that is to be accounted under the cost model. Depreciation of P100,000 is recognized
annually and periodic continuing maintenance cost of P10,000 per year as well as property tax of
P10,000 are incurred by the company on an annual basis.
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What should be the carrying value of the investment at the end of the year 2020?
a.) P13,910,000
b.) P13,380,000
c.) P13,900,000
d.) P14,090,000

27. On December 31, 2020, April’s investment in real property has carrying value of P1,600,000 under the
fair value model before considering market value adjustment. If the fair market value at December 31,
2020 is P1,000,000, how much should be the gain or loss on transfer if April Company would shift to
cost model?
a. Gain of P600,000 reported as other comprehensive income
b. Loss of P600,00 reported as other loss in the income statement
c. Loss of P600,000 reported in equity as decrease in revaluation surplus
d. Zero

28. Company A is a financial service entity that is involved in real estate development. Company A has
purchased land in Quezon City through the exercise of a purchase option that had been acquired some
years ago. The purchase price was P 20,000,000 and the land’s fair value as determined by an
independent value is P 46,400,000 on December 31, 2018, Company A should report the property as
a. Investment property at its original cost of P 20,000,000
b. Investment property at its fair value of P 46,400,000
c. Inventory at its original cost of P 20,000,000
d. Inventory at its fair value of P 46,400,000

29. At the current year-end, Ozz Company purchased for P30 per share all 200,000 of another entity’s
outstanding ordinary shares. On this date, the acquiree’s statement of financial position showed net
assets of P5,000,000.

Additionally, the fair value of the acquiree’s identifiable assets on this date was P400,000 in excess of
carrying amount.

In statement of financial position, what amount should be reported as goodwill as a result of the
acquisition?
a. 1,000,000
b. 400,000
c. 600,000
d. 350,000

30. On January 2, 2020 , Lighty Company converted its occupied property to investment property that is to
be carried at fair value. The carrying value of property in the company’s books is P4,000,000. Assuming
the fair value of the property on that date of transfer or conversion is P4,400,000,

Lighty Company should recognize

a.) A P400,000 unrealized gain in the profit or loss
b.) A P400,000 revaluation surplus in the share holders’ equity
c.) A P400,000 unrealized gain in the liability section
d.) A P400,000 direct credit to accumulated profits and losses
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QUIZ - Intangible asset & Investment property

Answer Section

MULTIPLE CHOICE

1. A

2. A

3. D

4. C

5. D

6. C

7. D

8. D

9. A

10. C

11. A

12. C

13. A

14. B

15. C

PROBLEM

16. Cash Price P3,000,000

Property tax assumed and paid 100,000

Broker’s commission 20,000

Registration cost 35,000

=Historical cost P3,155,000

17. Ans: A The correct answer is the 290,000 net disposal proceeds less the
203,500 (220,000 less 3/40ths thereof) carrying amount.

18. Answer: D. 4,900,000

Cost-1/1/16 5,000,000
Accumulated Depreciation ( 5,000,000/ 50 ) (100,000)
Carrying Amount-12/31/16 4,900,000

19. B

Down Payment (P2,400,000 x 20%) P 480,000

PV of future payments (P2,400,000 x 80% / 5 x 3.605) 1,384,320

Fair value of the investment property P1,864,320

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Add: Transaction costs 50,000

=Historical costs of the investment property P1,914,320

20. D

21. Answer: A. 400,000

Solution:

Fair Value 12/31/’16 P8,000,000

Int Carrying Amount (P7,600,000)

Gain 400,000

22. C

23. D

24. C
Explanation:
Company C should classify the property as investment property. Although the management has not
determined the use for the property after the park’s development takes place, in the medium-term
the land is held for capital appreciation. IFRS/PFRS considers land as held for capital appreciation, if
an entity has not determined that it will use the land either as owner-occupied property or for short-
term sale in the ordinary course of business.

25. B

Computation:

Carrying Amount 12/31/16 2,700,000

Less: Present value of cash flows (2,133,000)

Impairment loss 567,000

Computation of carrying amount:

Acquisition Cost 3,000,000

Depreciation (300,000)

Carrying Amount 2,700,000

Present value of cash flows computation:

Expected generate cash flows 300,000

PV of ordinary annuity of 1 at 5% × 7.11

Present value of cash flows 2,133,000

26. C

Historical cost P4,000,000

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Less: Depreciation 100,000

=Carrying value on December 31, 2020 P13,900,000

27. Ans: D Standard prohibits an enterprise to transfer from fair value model to cost model. Therefore, the
entity should continue to measure its investment property at fair value of P1,000,000 and recognized
loss of P600,000 as a decline in value of investment not as a loss on transfer from fair value to cost
model.

28. C
Explanation: the land should be classified as inventory. Although the entity is still undecided on what
to do with the land, the property is being held either for sale or for further development and eventual
sale in the ordinary course of business. Had the entity decided to hold the land for long-term capital
appreciation rather than short-term sale in the ordinary course of business, then it would be
classified as an investment property.

29. Answer: C

Acquisition Cost 200 x 30 = 6,000

FV of NA 5000+400=(5,400)
600

30. B

Market value, date of transfer P4,400,000

Carrying value, date of transfer (4,000,000)

Revaluation surplus-to shareholders’ equity 400,000