Land and building were acquired to be held for lease under operating leases. The entity made a down payment of P4,000,000, issued 20,000 ordinary shares with a par value of P200 and market price of P240 per share, and issued a three-year non-interest-bearing note for P6,000,000. The note is payable in equal annual installments of P2,000,000 at the end of each year from the date of purchase. Prevailing interest rate for similar notes is 10%. Thirty percent of the purchase price is allocated to the land.

How much is the annual depreciation of the property?

 
2. Galore Company ventured into construction of condominium in Makati which is rated as the largest state-of-the-art structure.

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

The construction of the condominium was completed and the property was placed in service on January 1, 20X7. The cost of the construction was P50,000,000. The useful life of the property 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:

December 31, 20X7

P55,000,000

December 31, 20X8

53,000,000

December 31, 20X9

60,000,000

Under the fair value model, what income or expense (with corresponding amounts) should Galore recognize in P&L in 20X7 and 20X8?


3. Included in Payne Company's inventory is land with carrying amount of P1,000,000. On December 31, 20X1, when the fair value of the land was P930,000, the entity decided to lease out the land rather than sell it. The entity uses the fair value model for its investment property.

What is the entry to record the transfer of the land to investment property?

 
4. On January 1, 20X1, Dream Company, a real estate company, decided not to lease out anymore its building but rather sell it. The building will be sold in its current state and that no redevelopment will be necessary. The building has a carrying amount of P1,000,000 and a fair value of P1,100,000.

What is the entry to record the reclassification of the building?

Answer rating: 100% (QA)

SOLUTION 1 To compute the annual depreciation of the property we need to determine the depreciable cost and the useful life of the property The deprec... View the full answer