Reference no: EM133171176
Question - You were assigned to audit the various long-term assets of your audit firm's client Orchid Inc. for the period ended December 31, 2021, its first year of operations. The company is operating a 100-hectare farmland which is employed to produce three main agricultural products - mangoes, corn and beef. The accountant of the client provided the following schedule of long-term assets:
100 hectare farm land at Cost (FMV as at 12/31 at P20M) P12,000,000
Mango trees at FMV less cost to sell (Cost P3M) 4,200,000
Partially developed mango fruits at FMV less cost to sell 550,000
Corn plants at FMV less cost to sell (Cost P1.2M) 600,000
Partially developed corn ears at FMV less cost to sell 900,000
Beef cattles at FMV less cost to sell (Cost P2M) 2,400,000
Patent at cost 650,000
Warehouse building at cost 800,000
Farm equipment at cost 1,200,000
Office building at cost 2,000,000
Office equipment at cost 1,500,000
Audit notes: All assets, where applicable are to be depreciated using the straight-line method over the following expected useful lives:
Mango trees 10 years
Corn plants 1 year
Beef cattles 10 years
Warehouse building 16 years
Office building 20 years
Farm and Office Equipment 8 years
Approximately 30 hectares of land are used as mango tree plantation, 20 hectares as corn field, 25 hectares for the cattle farming, 5 hectares as the administrative and office building site. The rest of the land is being leased out to third parties.
The company invented a specialized land cultivation process and had the process patented at the beginning of the year. Research and development costs incurred (included in the initial cost of the patent was at P400,000). The company spent P250,000 in processing, legal and other registration fees in relation to the patent grant. The patent has an 8-year useful life, after which the company is expecting a more innovative cultivation system would have been discovered. By the end of the year, the company estimates that the annual net cash flows from the patents continued use is at P36,973. Market rate of interest prevailing at the end of the year is at 10%.
Required - What is the carrying values of the Investment Property, assuming the entity elected to use the fair market value method of valuing Investment Properties as at December 31, 2021?