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What is the net income of the rental business

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Reference no: EM132879454

On January 1, 2020, William Company acquired land and building for P15,000,000, which will be used for periodic rentals to the different lessee. 30% is applicable to the land, and the remainder is to the building. During the year, the company able to lease out some of the spaces in the building amounting to P3,000,000. Operating costs to maintain the leased property amounted to P1,900,000, excluding its depreciation. The policy of the company is to depreciate its fixed assets using the straight-line method. The estimated life of the building is 40 years. On December 31, 2020, the land and building have a fair value of P16,500,000.

Requirements:

Problem 1. What is the net income of the rental business, assuming that the company is using the fair value model to account for its investment property

Problem 2. What is the effect of the company's net income from a rental business if the company is using the cost model to account for its investment property, instead of the fair value model.

Problem 3. Assume that on December 31, 2021, the fair value of the land and building is P15,500,000. Prepare the journal entry to account for the changes in the fair value of the investment property. The company uses the fair value model.

Problem 4. Using the same information in requirement no. 3, what will be your journal entry if the company is using the cost model.

Reference no: EM132879454

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