Chapter 22 - Investment Property Notes

CHAPTER 22- INVESTMENT PROPERTY (CASH SURRENDER VALUE)
Investment Property: property held for lease by a lessee/owner to earn rentals or for capital appreciation or both.
Inclusion: Land and Building
Exclusion: Movable property that is held for use in production or administrative purposes (owner-occupied property)
or for sale in the ordinary course or business (inventory).
Partly Investment and Partly Owner-Occupied: A portion is for rentals/appreciation, another is for
manufacturing/administrative purposes.
· If the portions could be sold or leased out separately, they should be accounted for separately.
· In cases that it could not be sold separately, it will be considered an investment property if only an insignificant
portion is held for manufacturing or administrative purposes.
Property leased to an affiliate:
· Individual Entity’s as the owner POV – investment property if leased to another subsidiary or its parent.
· Group’s POV – treated as owner-occupied property for purposes of consolidated FS.
Recognition:
1. Initial: at cost, purchase price + directly attributable expenditures.
excluded: start up cost, operating loss before occupancy, and abnormal amount of wasted material, labor and
overhead during construction and development.
2. Subsequent: Choose 1 and apply to ALL

a. Fair Value Model – changes in fair value from year to year are recognized in profit or loss. No
depreciation is recorded.
b. Cost Model – cost less accumulated amortization and impairment loss which are charged against the
profit/loss for the year. Fluctuations in FV are not recognized.
Note: The fair value of investment property excludes prepaid or accrued operating lease income.
Inability to determine fair value reliably (PAS 40; p53) - shall use cost method for measurement until disposal. If an
entity uses the FV model originally, then it shall continue to do so for the other investment property.
ILLUSTRATION: An entity leases a shopping mall to tenants to earn rentals. The cost of its construction was
P100,000,000, its useful life is 10 years and the residual value is P10,000,000.
Fair value at each subsequent year-end:
2022 120,000,000
2023 125,000,000
2024 115,000,000
COST MODEL – change in FV is not recognized,

Acquisition
Investment Property 100,000,000
Cash 100,000,000
Annual Depreciation
Depreciation 9,000,000
Accumulated Depreciation 9,000,000
FAIR VALUE MODEL – changes in FV is recognized in P/L. No depreciation is recorded.
Acquisition
Investment Property 100,000,000
Cash 100,000,000
Change in FV in 2022 year-end
Investment Property 20,000,000 (120,000,000-
100,000,000)
Gain from change in fair value 20,000,000
Change in FV in 2024 year-end
Loss from change in fair value 10,000,000 (125,000,000-
115,000,000)
Investment property 10,000,000
Derecognition: on disposal, when permanently withdrawn and when no future economic benefits can be expected
Disposal: Gain/Loss = net disposal proceeds less carrying amount of the asset.
TRANSFERS TO AND FROM INVESTMENT PROPERTY (IP): when and only when there is a change of use.
a. IP to Owner-Occupied Property (OP)
b. IP to Inventory – to sell
c. OP to IP – end of owner occupation or inception of operating lease
MEARSUREMENT OF TRANSFERS
1. When the entity uses the COST MODEL, the following transfers shall be made at carrying amount.
a. IP to Owner-Occupied Property (OP)
b. IP to Inventory – to sell
2. If the transfer from IP to OP is carried at fair value, it shall be accounted for at fair value.
3. If the transfer from OP to IP is carried at fair value, then, FV – Carrying Amount = Revaluation of PPE.
4. If the transfer from inventory to IP is carried at fair value, remeasurement shall be included in P/L.
5. When an IP construction is completed and carried at fair value, then, FV – CA = included in P/L.
CASH SURRENDER VALUE
Definition: a noncurrent investment; amount which the insurance firm will pay upon the surrender and cancelation of
the life insurance policy. CSV arises if: the policy is a life policy, premiums for 3 full years are paid, policy is
surrendered after 3 years of thereafter.
Note: An entity may insure the life of its officers and name itself or the officer (premium is charged to insurance
expense) as the beneficiary.
Loan Value: amount an insured can borrow from the insurance firm that is accounted for as an ordinary obligation
and not deducted from the CSV.
ILLUSTRATION:
An entity insured the life of the president for P2,000,000 the entity being the beneficiary of an ordinary life policy. The
annual premium is P30,000
The policy was dated January 1, 2022 and carried the following CSV:
End of the Policy Year Cash Surrender Value
2022 -
2023 -
2024 30,000
2025 42,000
2026 58,000
The entity used the calendar year as the fiscal period. The president died on June 30, 2026 and the policy was
collected on July 31, 2026.
Payment of the insurance premium (annually, so for 2022-2026)
Jan. 1 Life Insurance Expense 30,000
Cash 30,000
Initial Recognition at the end of 3 year (2024)

rd
Dec. 31 Cash Surrender Value 30,000
Life Insurance Expense (1/3) 10,000
Retained Earnings (prior 2 years) 20,000
Recognition of increase subsequent to 3 year (2025 and 2026)

rd
Dec. 31 Cash Surrender Value 12,000 (42,000-30,000)
Life Insurance Expense 12,000
Jun. 30 Cash Surrender Value 8,000 (58.000-42,000) (6/12) – death
Life Insurance Expense 8,000
Receipt of proceeds (2026 – policy collected)

Jul. 31 Cash 2,000,000
Cash Surrender Value 50,000 (30,000+12,000+8,000)
Life Insurance Expense 15,000 (30,000x6/12) – unexpired premium
Gain on life insurance settlement 1,935,000

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CHAPTER 22- INVESTMENT PROPERTY (CASH SURRENDER VALUE)

1. Initial: at cost, purchase price + directly attributable expenditures.

2. Subsequent: Choose 1 and apply to ALL

Fair value at each subsequent year-end:

COST MODEL – change in FV is not recognized,

a. IP to Owner-Occupied Property (OP)

c. OP to IP – end of owner occupation or inception of operating lease

a. IP to Owner-Occupied Property (OP)

CASH SURRENDER VALUE

End of the Policy Year Cash Surrender Value

Payment of the insurance premium (annually, so for 2022-2026)

Jan. 1 Life Insurance Expense 30,000

Initial Recognition at the end of 3 year (2024)

Dec. 31 Cash Surrender Value 30,000

Life Insurance Expense (1/3) 10,000

Retained Earnings (prior 2 years) 20,000

Recognition of increase subsequent to 3 year (2025 and 2026)

Dec. 31 Cash Surrender Value 12,000 (42,000-30,000)

Life Insurance Expense 12,000

Jun. 30 Cash Surrender Value 8,000 (58.000-42,000) (6/12) – death

Life Insurance Expense 8,000

Receipt of proceeds (2026 – policy collected)

Cash Surrender Value 50,000 (30,000+12,000+8,000)

Life Insurance Expense 15,000 (30,000x6/12) – unexpired premium

Gain on life insurance settlement 1,935,000

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