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Questions and Answers
Investment Property is defined as a property held exclusively for capital appreciation.
Investment Property is defined as a property held exclusively for capital appreciation.
False
Owner-occupied properties are properties used by the owner for administrative purposes.
Owner-occupied properties are properties used by the owner for administrative purposes.
True
The initial measurement of Investment Property only includes the purchase price.
The initial measurement of Investment Property only includes the purchase price.
False
A transfer from Investment Property to owner-occupied property occurs when owner-occupation commences.
A transfer from Investment Property to owner-occupied property occurs when owner-occupation commences.
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Construction costs for self-constructed Investment Property are recorded as 'Construction in Progress' until the property is completed.
Construction costs for self-constructed Investment Property are recorded as 'Construction in Progress' until the property is completed.
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Impairment occurs when an asset's recoverable amount is greater than its carrying amount.
Impairment occurs when an asset's recoverable amount is greater than its carrying amount.
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The retention fee for progress billing is an amount paid to the contractor after the project is completed.
The retention fee for progress billing is an amount paid to the contractor after the project is completed.
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An Investment Property is derecognized when it is permanently withdrawn from use regardless of future economic benefits.
An Investment Property is derecognized when it is permanently withdrawn from use regardless of future economic benefits.
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Study Notes
Investment Property - Government Accounting
- Investment property is defined as land or buildings (or parts of buildings), held to earn rentals, or for capital appreciation, or both.
- It is contrasted with owner-occupied property, which is used in the production or supply of goods/services or for administrative purposes.
- Investment property is initially measured at cost. Transaction costs are included in this initial measurement. Cost includes purchase price and any directly attributable expenditures.
- Example: If Entity A buys land for ¥1,000,000, plus professional fees and transfer taxes of ¥50,000, the accounting entry would be:
- Debit: Investment Property, Land (¥1,050,000)
- Credit: Cash-Modified Disbursement System (¥1,050,000)
Non-exchange Transaction
- An unconditional donation of property (e.g., land with a fair value of £2,000,000) results in the following accounting entry:
- Debit: Investment Property, Land (¥2,000,000)
- Credit: Income from Grants and Donations in Kind (¥2,000,000)
Self-constructed Property
- If investment property (IP) is self-constructed (by contract or by administration), all construction costs are recognized as "Construction in Progress" until completion.
- Upon completion, these costs are transferred to the "Investment Property" account when the criteria for recognition are met. For example, on a contract to construct a building for ¥11,200,000, an advance payment of 15% is made to the contractor, and a retention fee of 10% of the progress billing.
Transfer
- Transfers to or from investment property are made when there's a change in use, evidenced by:
- Commencement of owner-occupation
- Commencement of development for sale
- End of owner-occupation
- Commencement of an operating lease
Derecognition of Investment Property
- IP is derecognized when permanently withdrawn from use or disposed of, and no future economic benefits are expected.
Gains/Losses
- If property held as investment property is sold for more than its cost, accumulated depreciation, and impairment, a gain is recognized.
- Example: A building costing ¥4,000,000, with accumulated depreciation of ¥500,000 and impairment of ¥100,000, is sold for ¥5,000,000.
- Gain on sale = (¥5,000,000 − (¥4,000,000 + ¥500,000 + ¥100,000)) = ¥1,600,000.
- Example: A building costing ¥4,000,000, with accumulated depreciation of ¥500,000 and impairment of ¥100,000, is sold for ¥5,000,000.
Compensation of 3rd Parties
- If property is lost (e.g., demolished by fire with a cost of £4,000,000, accumulated depreciation of £500,000, and an impairment allowance of £100,000), the loss of investment property is recognized. This loss will be recorded.
Due from Government-Owned
- Receivables from government-owned or controlled corporations, such as from the GSIS Insurance Fund, are recognized in the accounting records.
Impairment
- An asset is impaired when its carrying amount exceeds its recoverable amount due to a fall in market value. Impairment loss is calculated as the difference between the carrying amount and the recoverable amount, which is the higher of fair value less cost to sell and value in use. Value in use is the present value of the asset's estimated future cash flows.
Adjusted Depreciation
- The revised carrying amount is derived by subtracting the residual value from the estimated carrying amount.
- Example, if the building has a residual value of ¥1,750,000, then the depreciation is adjusted to reflect its useful life.
Reversal
- If there's an indication that an impairment loss recognized in a prior period may no longer exist or has decreased, the recoverable amount of that asset is estimated.
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Description
Explore the essential concepts of investment property in the context of government accounting. This quiz covers definitions, initial measurement, and the contrasting features of investment properties versus owner-occupied properties. Test your understanding with examples and accounting entries.
