Accounting for Investment Property

A real property held by the owner or the lessee under finance lease to earn rental or for capital appreciation.
Real Property only includes land and building
Examples
Land held for capital appreciation, undetermined use or idle
Building owned or leased under finance lease and leaseout under operating lease
Property being develop for future use as investment property

Partly Investment and Partly Owner-occupied(PPE)

If the property can be sold or leased-out separately
Portion leased-out - Invetment property
Portion occupied - PPE

Ancillary services are provided to the lessee

If significant component of the arrangement - PPE
If insignificant component of the arrangement - Investment property

Property leased-out to an affiliate

FS Classification
Owner Owner Consolidated
Parent Investment Property PPE
Subsidiary Investment Property PPE

Measurent of Investment Property

Initial Cost (Purchase price plus transaction cost)
Subsequent
Fair Value Model (applicable to all investment properties)
Cost Model

Inability to measure fair value reliably

Cost model until the disposal with zero provision for salvage value.

Transfer of Investment Property and the related measurement

Model use (IP) Measurement
Investment Property to PPE Cost model Carrying Amount
Investment Property to Inventory Cost Model Carrying Amount

Investment Property to PPE Fair Value Model Fair Value

Investment Property to Inventory Fair Value Model Fair Value

PPE to Investment Property Fair Value Model FV - CV --> revaluation surplus/(impairment loss)

To bring the asset to its FV

To record the transfer

Inventory to Investment Property Fair Value Model FV - CV --> P&L

 Completion of the property under construcFair Value Model FV - CV --> P&L

Problem 1:
Classic Company and its subsidiaries own the following properties that are accounted for in accordance with international acc
1 Land Held by the parent for undetermined use
2 A vacant building owned by the parent and to be leased out under operating lease
3 Property held by a subsidiary, a real estate firm, in the ordinary course of business
4 Property held by the parent for use in production
5 Building owned by a subsidiary and for which the subsidiary provides security and maintenance services to the lessees
6 Land leased by the parent to a sudsidiary under operating lease
7 Property under construction for use as investment property
8 Land held for future factory site
9 Machinery leased out by the parent to an unrelated party under an operating lease

1) Compute the total Investment Property to be reported in the consolidated statememnt of financial position.
2) Indicate the clasiffication of the assets that are excluded from investment property.

Problem 2:
Galore Company ventured into construction of a condominium in Makati which is rated as the largest state-of-the-art structur

The board of directors decided that instead of selling the condominium, the entity would hold this property for the purpose
rentals by letting out space to business executives in the area

The construction of the condominium was completed and the property was placed in service on January 1, 2022.

The cost of construction was P50,000,000.

The useful life of the condominium is 25 years and the residual value is P5,000,000.

An independent valuation expert provided the following fair value at each subsequent year-end:
2022 - P55,000,000 2023 - P53,000,000 2024 - P60,000,000

Prepare the journal entries for 2022, 2023 and 2024 using the:
a) Cost Model
b) Fair Value Model
Cost Model
1/1/22
Investment Property 50,000,000.00
Cash 50,000,000.00
12/31/22
Depreciation Expense (50M - 5M) / 25 1,800,000.00
Accumulated Depreciation 1,800,000.00

12/31/23
Depreciation Expense (50M - 5M) / 25 1,800,000.00
 Accumulated Depreciation 1,800,000.00
12/31/24
Depreciation Expense (50M - 5M) / 25 1,800,000.00
Accumulated Depreciation 1,800,000.00
tal or for capital appreciation.

erating lease
Finance Operating
Owner Lessee-Lessor Lessee

Debit Credit
Land/Bldg Investment Property
Inventory Investment Property

Land/Bldg Investment Property

Inventory Investment Property

plus/(impairment loss)
Land/Bldg Revaluation Surplus If FV > CV

Impairment Loss Land/Bldg/Accum Dep If CV > FV

Investment Property Land/Bldg

Investment Property Land/Bldg

 Gain on remeasurement/Reclassification

Investment Property Land/Bldg

Gain on remeasurement/Reclassification

rdance with international accounting standards: IP - Investment Property

5,000,000.00 IP
3,000,000.00 IP
2,000,000.00 Inventory
4,000,000.00 PPE Factory Building
ance services to the lessees 1,500,000.00 IP
2,500,000.00 PPE
6,000,000.00 IP
3,500,000.00 PPE
1,000,000.00 PPE

financial position. 15,500,000.00

rgest state-of-the-art structure.

this property for the purpose of earning

January 1, 2022.

Fair Value Model

Same entry

Investment Property (55M - 50M) 5,000,000.00

Gain from change in FV 5,000,000.00

Loss from change in FV (53M - 55M) 2,000,000.00

 Investment Property 2,000,000.00

Investment Property (60M - 53M) 7,000,000.00

Gain from change in FV 7,000,000.00
Accounting for Cash Surrender Value
Benificiary of the life insurance policy is the entity
Payment of the insurance premium is accounted as expense Life Insurance Expense (LIE)
Adjustment for unexpired premium
Dividends or income received are reported as deduction to life insurance expense
Initial cash surrender value is allocated over the related accounting period. CSV
amount related to previous years - RE (Retained Earnings)
amount related to current year - LIE

Gain from life insurance Policy FV - CSV - Unexpired Premium Cash/Claims Receivable

Problem 1:
Impartial Company took out a P5,000,000 insurance policy on the life of the president on January 1, 2021.

The accounting period is the calendar year. The annual premium of the policy is P80,000.

Data regarding dividends and cash surrender value are:

2022 2023 2024
Dividends received on December 31, - 5,000.00 6,000.00
Cash surrender value - 42,000.00 47,000.00

Prepare the journal entries for 2022, 2023 and 2024.

2022 2023
LIE 80,000.00 80,000.00
Cash 80,000.00 80,000.00

Cash - 5,000.00
LIE - 5,000.00

CSV - 42,000.00
LIE - 14,000.00
RE - 28,000.00

How much is the correct value of Life Insurance Expense 66,000.00 61,000.00

Problem 2:
Impartial Company took out a P5,000,000 insurance policy on the life of the president on April 1, 2020.

The accounting period is the calendar year. The annual premium of the policy is P80,000.

Data regarding dividends and cash surrender value are:

2022 2023 2024
Dividends received - 5,000.00 6,000.00
Cash surrender value - 42,000.00 47,000.00

Prepare the journal entries for 2022, 2023 and 2024.

 Jan-01 2022 2023
Reversing Entries of the adjusting entries in the previous year
LIE 20,000.00 20,000.00
Prepaid LIE 20,000.00 20,000.00
Apr-01
LIE 80,000.00 80,000.00
Cash 80,000.00 80,000.00

Cash - 5,000.00
LIE - 5,000.00

CSV - 42,000.00
LIE - 3,500.00
RE - 38,500.00
Dec-31
CSV (47,000 - 42,000) X 9/12 3,750.00
LIE 3,750.00

Prepaid LIE 20,000.00 17,812.50

LIE 20,000.00 17,812.50

Problem 3:
Elise Company reported the following accounts under current assets on December 31, 2021:
Cash Surrender Value 90,000.00
Policy loan from insurance company - 50,000.00 40,000.00
Dividends Received from insurance company 2,000.00

Upon investigation, the following data were gathered:

The cash surrender value of P90,000 reported in the statement of financial position is for June 30, 2022.
The cash surrender value is P80,000 as of June 30, 2021.

On June 30. 2021, the entity paid the annual premium of P30,000 minus the dividends declared of P2,000.

The loan from the insurance company is one-year note dated April 1, 2021.
The 12% interest is payable on the date of maturity.

The dividend declared was recorded by debiting dividends receivable and crediting dividend income.
Expense (LIE)

RE
LIE

ash/Claims Receivable
LIE - Unexpired
CSV updated to date of death
Gain from life insurance
ary 1, 2021.

2024 2021
80,000.00 80,000.00
80,000.00

6,000.00
6,000.00

5,000.00
5,000.00 14,000.00

69,000.00 66,000.00
 2024

17,812.50
17,812.50

Apr 1 2020 Apr 1 2021 Apr 1 2022Apr 1 2023

14,000.00
14,000.00 42000

CSV
416.67 LIE
833.33333333 14,000.00
80,000.00 PRE LIE 3500
- 5,000.00 LIE 11,875.00
- 3,750.00
71,250.00 Apr 1 , 2023 to Mar 31, 2024

FV 5,000,000.00
Unexpired LI 11,875.00
CSV 46,166.67
Gain 4,941,958.33

d of P2,000.
Investment in Funds

Company may place assets in special funds for specific purposes, and some of these assets then become unavailable for
because of indenture or other contractual arrangements. Special funds maybe current such as petty cash funds, or may b

Long-term Funds
Fund Purpose
Sinking Fund Payment of long-term debt
Plant Expansion Fund Purchase or construction of additional plant
Stock Redemption Fund Retirement of Shares of Stock (Preference Share)
Contingency Fund Payment of unforseen obligation.

Accounting for sinking fund may either be administered by a trustee (a separate entity) or by the company
Journal entries for sinking fund
Transactions Administered by the company Administered
Initial and periodic Sinking Fund - Cash XXX Sinking Fund - trustee
contribution Cash in Bank XXX

Investment of sinking Sinking Fund - Securites XXX No entry

fund to earn income Sinking Fund - Cash XXX
Expenses incurred in
administering sinking Sinking Fund Expenses XXX Sinking Fund Expenses
fund Sinking Fund - Cash XXX

Income earned by the Sinking Fund - Cash XXX Sinking Fund - trustee
investment Sinking Fund Income XXX

Sale of securities related Sinking Fund - Cash XXX No entry

to sinking funds Sinking Fund - Securites XXX

Liability Account XXX Liability Account

Payment of liabilty Sinking Fund - Cash XXX

Transfer of sinking fund Cash in Bank XXX Cash in Bank

to regular cash account Sinking Fund - Cash XXX

Accumulation of funds
Future Value of 1 FVF = (1+i)^n contirbution is on a lumpsum basis (one-time con
Future Value Annuity of 1 FVAF = ((1+i)^n - 1)/i contribution in on installment basis paid at year-e
Future Value Annuity Due of 1 FVADF = ((1+i)^(n+1) - 1)/i - 1 contribution in on installment basis paid at start o

Jan 1, 2021 2,837,134.28

Dec 31, 2021 3,177,590.39
Dec 31, 2022 3,558,901.24
Dec 31, 2023 3,985,969.39
Dec 31, 2024 4,464,285.71
Dec 31, 2025 5,000,000.00
Funds to be accumulated is P5,000,000 for 5 years.
Interest rate = 12% Return on Investment
Compute for contribution to be made assuming: Future Value of Fund FV Factor
1) one-time payment 5,000,000 / 1.7623416832
2) installment 5,000,000 / 6.35284736
3) installment paid in advance 5,000,000 / 7.1151890432

Date Income Balance

Jan 1, 2022 2,837,134.28
Dec 31, 2022 340,456.11 3,177,590.39
Dec 31, 2023 381,310.85 3,558,901.24
Dec 31, 2024 427,068.15 3,985,969.39
Dec 31, 2025 478,316.33 4,464,285.71
Dec 31, 2026 535,714.29 5,000,000.00

Date Contribution Income

Dec 31, 2022 787,048.66 -
Dec 31, 2023 787,048.66 94,445.84
Dec 31, 2024 787,048.66 200,225.18
Dec 31, 2025 787,048.66 318,698.04
Dec 31, 2026 787,048.66 451,387.64

Date Contribution Income

Jan 1, 2022 702,722.02
Dec 31, 2022 702,722.02 84,326.64
Dec 31, 2023 702,722.02 178,772.48
Dec 31, 2024 702,722.02 284,551.82
Dec 31, 2025 702,722.02 403,024.68
Dec 31, 2026 535,714.29
ets then become unavailable for normal operations
uch as petty cash funds, or may be long-term.

the company

Administered by Trustee
ng Fund - trustee XXX
Cash in Bank XXX

ng Fund Expenses XXX

Sinking Fund - trustee XXX

ng Fund - trustee XXX

Sinking Fund Income XXX

ity Account XXX

Sinking Fund - trustee XXX

XXX
Sinking Fund - trustee XXX

PVF
n a lumpsum basis (one-time contribution) (1+i)^-n
n installment basis paid at year-end ((1 - (1+i)^-n)/i
n installment basis paid at start of the year ((1 - (1+i)^(n-1))/i + 1
Income CV Income CV
702,722.02 702,722.02
787,048.66 - 787,048.66 702,722.02 84326.64 1,489,770.68
787,048.66 94,445.84 1,668,543.16 702,722.02 178772.5 2,371,265.18
787,048.66 200,225.18 2,655,817.00 702,722.02 284551.8 3,358,539.01
787,048.66 318,698.04 3,761,563.70 702,722.02 403024.7 4,464,285.71
787,048.66 451,387.64 5,000,000.00 0 535714.3 5,000,000.00
Using Basic Calculator
 period Lump sum Annuity
0 1.00000 -
Contribution End of year 1 1.12000 1.00000
= 2,837,134.28 2 1.25440 1.12000
= 787,048.66 3 1.40493 1.25440
= 702,722.02 4 1.57352 1.40493
5 1.76234 1.57352
1.76234 6.35285

Balance
787,048.66
1,668,543.16
2,655,817.00
3,761,563.70
5,000,000.00

Balance
702,722.02
1,489,770.68
2,371,265.18
3,358,539.01
4,464,285.71
5,000,000.00
Annuity due
1.00000
1.12000
1.25440
1.40493
1.57352
1.76234
7.11519