Problems
1. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties
they own:
Land held by Quirino, Inc. for undetermined future use, P5,000,000.
A vacant building owned by Quirino, Inc. and to be leased out under an operating lease,
P20,000,000.
Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its
business, P30,000,000.
Property held by Quirino, Inc. for use in production, P1,000,000.
A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which Sugo, Inc. provides security
services for its guests’ belongings, P50,000,000.
A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary of Quirino, Inc.,
P20,000,000.
How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated
financial statements?
2. The Kuala Lumpur Company's accounting policy with respect to investment properties is to measure them
at fair value at the end of each reporting period. One of its investment properties was measured at
P800,000 on 31 December 2019.
The property had been acquired on 1 January 2019 for a total of P760,000, made up of P690,000 paid to
the vendor, P30,000 paid to the local authority as a property transfer tax and P40,000 paid to professional
advisers.
In accordance with PAS40 Investment property, the amount of the gain to be recognized in profit or loss
in the year ended 31 December 2019 in respect of the investment property is
3. The Kathmandu Company acquired a building on 1 January 2019 for P900,000. At that date the building
had a useful life of 30 years. At 31 December 2019 the fair value of the building was P960,000. The
building was classified as an investment property and accounted for under the cost model.
According to PAS40 Investment property, what amounts should be carried in the statement of financial
position (SFP) and recognized in profit or loss (P/L)?
4. The Conehead Company purchased an investment property on 1 January 2016 for a cost of P220,000.
The property had a useful life of 40 years and at 31 December 2018 had a fair value of P300,000. On 1
January 2019 the property was sold for net proceeds of P290,000. Conehead 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 2019 regarding
the disposal of the property?
Use the following information for the next two questions.
Cabarroguis, Inc., a real estate company, has a property included in its inventory with a cost of P10,000,000
and net realizable value of P8,000,000 on December 31, 2018. Because of the decline in the real estate
industry, the company decided to lease out the property to a tenant under an operating lease in 2019 when
the fair value of the property was P7,000,000.
5. If the company will use the cost model to measure the investment property, how much should be
recognized in the 2019 profit or loss as a result of the transfer from inventory to investment property?
6. If the company will use the fair value model to measure the investment property, how much should be
recognized in the 2019 profit or loss as a result of the transfer from inventory to investment property?
7. Diffun, Inc. owns a building purchased on January 1, 2015 for P50 million. The building was used as
the company’s head office. The building has an estimated useful life of 25 years. In 2019, the company
transferred its head office and decided to lease out the old building. Tenants began occupying the old
building by the end of 2019. On December 31, 2019, the company reclassified the building as
investment property to be carried at fair value. The fair value on the date of reclassification was P42
million.
How much should be recognized in the 2019 profit or loss as a result of the transfer from owner-
occupied to investment property?
