Problem 22-2 (IFRS)
Galore Company ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure.
The board of directors decided that instead of selling the condominium, the entity would hold
this property for purposes of earning rentals by letting out space to business executives in the
area.
The construction of the condominium was completed and the property was placed in service on
January 1, 2021.
The cost of the construction was P50,000,000.
The useful life of the condominium is 25 years and the residual value is P5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2021 55,000,000
December 31, 2022 53,000,000
December 31, 2023 60,000,000
Required:
Prepare journal entries for 2021, 2022 and 2023:
a. The investment property is accounted for under the cost model.
b. The investment property is accounted for under the fair value model.
Solution:
Cost model
2021 Investment Property 50,000,000
Cash 50,000,000
Depreciation expense 1,800,000
Accumulated depreciation 1,800,000
2022 Depreciation expense 1,800,000
Galore Company ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure.
The board of directors decided that instead of selling the condominium, the entity would hold
this property for purposes of earning rentals by letting out space to business executives in the
area.
The construction of the condominium was completed and the property was placed in service on
January 1, 2021.
The cost of the construction was P50,000,000.
The useful life of the condominium is 25 years and the residual value is P5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2021 55,000,000
December 31, 2022 53,000,000
December 31, 2023 60,000,000
Required:
Prepare journal entries for 2021, 2022 and 2023:
a. The investment property is accounted for under the cost model.
b. The investment property is accounted for under the fair value model.
Solution:
Cost model
2021 Investment Property 50,000,000
Cash 50,000,000
Depreciation expense 1,800,000
Accumulated depreciation 1,800,000
2022 Depreciation expense 1,800,000
