Deck 17: Investment Property

Question 1

What is investment property?

A) Machinery used in the production of products.
B) Shares, bonds, and other marketable securities.
C) Vacant land purchased on which the entity plans to place a factory in the future
D) Land and/or building used to earn rental income.

Answer 1

Land and/or building used to earn rental income.

Question 2

When an entity accounts for investment property using the cost model, when is the value of the property revalued?

A) At the end of the reporting period.
B) Whenever the value of the property changes materially.
C) When the sum of the next 10 year's expected cash flows from the property is less than its carrying value.
D) Never.

Answer 2

Never.

Question 3

When an entity accounts for investment property using the fair value model, when is the value of the property revalued?

A) At the end of the reporting period.
B) Whenever the value of the property changes materially.
C) When the sum of the next 10 year's expected cash flows from the property is less than its carrying value.
D) Never.

Answer 3

At the end of the reporting period.

Question 4

Which of the following meets the definition of investment property?

A) The property is owner-occupied.
B) The property used in the production or supply of goods or services, or for administrative purposes.
C) The property is rented to another entity.
D) The property is held for sale in the ordinary course of business.

Question 5

A distinguishing feature of investment property is that it

A) appreciates faster than other property.
B) generates cash flows independently of other assets held by the entity.
C) is easily sold on independent markets.
D) is accounted for at the lower of cost or net realizable value.

Question 6

A property is accounted for as a mixed-use property when

A) the property is not held entirely for rental purposes or capital appreciation purposes.
B) the property is not used for a single purpose, for instance, condominiums and retail stores in the same building.
C) the entity purchased the property as an investment but it doesn't generate positive cash flows.
D) The entity hasn't determined the what the property will be used for in the future.

Question 7

An investment property is measured initially at cost at the time the cost is incurred, which is equivalent to fair value, assuming that

A) management's intent when purchasing the property is clearly known.
B) the acquisition was the result of an arm's-length exchange transaction.
C) the investment property does not require additional expenditures before it can be used.
D) The cost of the property and its fair value are the same.

Question 8

Under the fair value model, investment property is measured at fair value, which is

A) the price that would be received to sell the investment property in an orderly transaction between market participants at the measurement date.
B) the present value of the discounted cash flows.
C) the price that is similar to other assets that are traded in real estate market.
D) the price determined by an independent appraisal.

Question 9

Why would an investment property after initial recognition be measured at cost?

A) To be consistent with the way management accounts for other property, plant, and equipment.
B) Because measuring property at cost preserves the historical measures of the purchase price of the property.
C) Cost is more reliable and verifiable and faithfully represents the guiding principles of the Conceptual Framework.
D) Because fair value cannot be determined.

Question 10

Which of the following should be included in the cost of an investment property?

A) Start-up costs
B) Initial operating losses
C) Legal fees
D) Abnormal waste

Question 11

Leased property can qualify as investment property.

Question 12

A distinguishing feature of investment property is that it generates cash flows independently of other assets held by the entity.

Question 13

Property held for sale in the ordinary course of business can be classified as investment property.

Question 14

Owner-occupied property can be classified as investment property.

Question 15

Costs that are directly attributable to the acquisition of investment property, such as legal and brokerage fees, property transfer taxes, should be capitalized as part of the cost of the investment property.

Question 16

Gains and losses arising from changes in the fair value of investment property are recognized in profit or loss in the period they occur.

Question 17

Property not initial classified as investment property cannot be classified as investment property at a future date.

Question 18

The day-to-day repair and maintenance expenses should be included in the carrying amount of investment property.

Question 19

The cost of an investment property should include start-up costs.

Question 20

Investment properties should be tested for impair just like any other asset.

Question 21

How does accounting for different portions of the property as investment property and property, plant and equipment adhere to the qualitative characteristics of the Conceptual Framework?

Question 22

Rental Property Entity (RPE) owns a five story building. The first floor is leased to a pizza chain restaurant for purposes of earning investment income. The remaining four floors are used as RPE's office headquarters. Under what conditions can RPE account for the first floor as an investment property?

Question 23

Provide three examples of investment property.

Question 24

If an entity chooses the cost model to measure the investment property after initial recognition, why must fair value information also be disclosed?

Question 25

On July 1, 20X7 Investment Entity (IE) paid $440,000 in cash for a building. IE acquired the building with the intent to earn lease rental income. IE also paid $5,000 in property transfer taxes and $4,000 for direct legal costs to complete the purchase. What amount should IE record as the initial cost of the building?

Question 26

Agricultural Entity (AE) purchased 200 hectares of land on January 1, 20X7 and appropriately recorded it as investment property with a carrying value of $2,500,000. AE uses the fair value method to account for the property. At the end of 20X7, the fair value of the land was $2,250,000. At the end of 20X8, the land was appraised at a fair value of $2,275,000. Give the journal entries to adjust the carrying value of the land to fair value at the end of 20X7 and 20X8.