What is the cost of Investment Property

Assignment Help Financial Accounting

Reference no: EM132827442

Question - AB Company is a real estate company. On June 30, 20x0, it purchased a piece of property (land and building) at an installment price of P100 million on June 30, 20x0.

The appraised value of land is P 30,000,000, while there is no ready market value for building).

The Company made a down-payment of 10%, and issued a non-interest bearing note payable at the end of each year for 9 years (P10 million each).

As of the transaction date, the market rate for 9 years is 12%.

The property has unpaid real property tax of P100,000 which was assumed by the company, and also paid broker's commission, legal costs, and other direct taxes amounting to P50,000.

AB Company elected to use Fair Valuation Model to account for Investment Property.

According to its external valuers, the market value of the property as at December 31, 20x0 is the following:

Land P40M

Building 30M

The useful life of building is 50 years, salvage value at 10% of cost.

Required -

a. As of June 30, 20x0, what is the cost of Investment Property?

b. For December 31, 20x0, what is the gain on changes in fair value? Is this recognized in the P/L or in Equity?

c. How would your answer change in b if the piece of property is classified as PPE instead of Investment Property?

Reference no: EM132827442

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