Reference no: EM132760525
Question - INVESTMENT PROPERTY - PROBLEM - Journalize the transactions.
The following are independent situations:
1. Chyna, Inc. completed the construction of a building at the end of 2018 for a total cost of P100 million. The building is estimated to be economically useful for 25 years. The building was constructed for the purpose of earning rentals under operating leases. The tenants began occupying the building after its completion. The company opted to use the fair value model to measure the building. An independent valuation expert was used by the company to estimate the fair value of the building on an annual basis. According to the expert the fair values of the building at the end of 2018, 2019 and 2020 were P105 million, P120 million and P118 million, respectively.
The company's business expanded in 2019. As a result, the company started to use the building in its operations on January 1, 2020. Because of the change in use, the company reclassified the building from investment property to property, plant and equipment.
2. Deena, Inc. owns a building purchased on January 1, 2016 for P100 million. The building was used as the company's head office. The building has an estimated useful life of 25 years. In 2020, the company transferred its head office and decided to lease out the old building. Tenants began occupying the old building by the end of 2020. On December 31, 2020, the company reclassified the building as investment property to be carried at fair value. The fair value on the date of reclassification was P85 million.
3. Ellah Company, a property developer, completed the development of 30 units of office building for sale. Upon completion, 5 units remain unsold and classified as inventories. The cost of these remaining units is P2,000,000 per unit whilst the net selling price is P2,500,000 per unit. Management subsequently decides to hold the units as investment property by letting out to tenants.
4. On January 2, 2019, Finnick Company made a test of impairment on one of its buildings carried as plant asset. The test on impairment revealed a recoverable value of P8,250,000 on that building. The carrying value of this building as of January 2, 2019 is P12,000,000 with a remaining useful life of 10 years.
On January 1, 2021, Finnick Company decided to convert this building into an investment property that is to be carried at fair value. The cost of converting the building is insignificant but as a result of the change in the usage, the fair market value of the building was reliably valued at P10,500,000.
Required - Journalize the above transactions.