Govacc Chapter 9,11,12

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  Chapter 9   INVESTMENT PROPERTY   Sec. 1. Scope. This Chapter provides standards, policies, procedures and guidelines in   accounting for investment property (IP) under PPSAS 16, Investment Property. Entities shall apply these policies on IP, including (a) the measurement in a lessee’s financial statements of IP interests held under a lease accounted for as a finance lease and (b) the measurement in a lessor’s financial statements of IP provided to a lessee under an operating lease.   Sec. 2. Definitions of Terms. The following terms are used in this Chapter with the   meanings specified:   a.   Carrying amount  –    is the amount at which an asset is presented in the statement of    financial position.  b.   Cash Generating Unit  –    the smallest identifiable group of assets held with the    primary objective of generating a commercial return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. c.   Cost  –    is the amount of cash or cash equivalents paid or the fair value of other    consideration given to acquire an asset at the time of its acquisition or construction. d.    Depreciation  –    is the systematic allocation of the depreciable amount of an asset over    its useful life. e.    Impairment  –    a loss in the future economic benefits or service potential of an asset,   over and above the systematic recognition of the loss of the asset’s future economic  benefits or service potential through depreciation. f.    Investment Property  –    is a property (land or buildings-or part of a building-or both)   held to earn rentals, or for capital appreciation or both. It is not held for use in the  production or supply of goods or services, for administrative purposes, or sale in the ordinary course of business.  g.   Owner-occupied property  –    is property held (by the owner or by the lessee under a   finance lease) for use in the production or supply of goods or services or for administrative purposes.   h.    Recoverable amoun t    –    is the higher of a cash- generating asset’s fair value less costs   to sell and its value in use. Sec. 3. Items considered as Investment Property . The following are examples of IP:   a.   Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of operations;  b.   Land held for a currently undetermined future use; 145      c.   A building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases on a commercial basis; d.   A building that is vacant but is held to be leased out under one or more operating leases on a commercial basis to external parties; e.   Property that is being constructed or developed for future use as IP; and f.   Significant portion of a property that is held to earn rentals or for capital appreciation rather than to provide services, and insignificant portion that is held for use in the  production or supply of goods or services or for administrative purposes. Sec. 4. Items not considered as Investment Property . The following are not IP:   a.   Biological assets related to agricultural activity;  b.   Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources; c.   Property held for sale in the ordinary course of operations or in the process of construction or development for such sale; d.   Property being constructed or developed on behalf of third parties; e.   Owner-occupied property, including: 1.   Property held for future use as owner-occupied property; 2.   Property held for future development and subsequent use as owner-occupied  property; 3.   Property occupied by employees; or 4.   Owner-occupied property awaiting disposal. f.   Property that is leased to another entity under a finance lease; g.   Property held to provide a social service and which also generates cash inflows; h.   Property held for strategic purposes; and, i.   Property held for use in the production or supply of goods or services or for administrative purposes. Sec. 5. Criteria for Recognition.   IP shall be recognized as an asset when, and only   when:   a.   It is probable that the future economic benefits or service potential that are associated with the IP will flow to the entity; and  b.   The cost or fair value of the IP can be measured reliably. 146      Sec. 6. Measurement at Initial Recognition. IP shall be measured initially at its cost.   Transaction costs shall be included in this initial measurement. Cost includes purchase price and any directly attributable expenditures, such as:   a.   Professional fees for legal services;  b.   Property transfer taxes; and c.   Other transaction costs. Costs not included at initial recognition:   a.   Start-up costs unless they are necessary to bring the property to the condition necessary for it to be capable of operating in the manner intended by management;  b.   Operating losses incurred before the investment property achieves the planned level of occupancy; or c.   Abnormal amounts of wasted materials, labor or other resources incurred in constructing or developing the property. Sec. 7. Mode of Acquisition of Investment Property. IP can be acquired through cash    purchase, non-exchange transaction, construction, exchange of assets and installment.   a.   Cash Purchase .  The cost of a purchased IP consists of the purchase price and all costs directly attributable to its acquisition, such as, professional fees for legal services,  property transfer taxes and other transaction costs. Example: Entity A purchased a land for capital appreciation at a cash price of P1,000,000. Professional fees and transfer taxes totaling to P50,000 were also paid. The accounting entry to recognize the purchase shall be as follows:   Account Title   Account Code   Debit   Credit   Investment Property, Land   10501010   P   1,050,000   Cash-Modified Disbursement   System (MDS), Regular    10104040   P   1,050,000   To recognize purchase of land for capital appreciation    b.    Non-exchange Transaction. Where an IP is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition. Non-exchange transactions may be through transfer of property at no cost (donation), or by the exercise of powers of sequestration. Example: Entity A received an unconditional donation of a piece of land with a fair value of P2,000,000. The accounting entry to recognize the receipt of donated land shall be as follows: Account Title   Account Code   Debit   Credit   Investment Property, Land   10501010   P   2,000,000   Income from Grants and   Donations in Kind   40402020   P   2,000,000   To recognize receipt of donated land   147      c.   Self-constructed Property .  If an IP is self-constructed, whether by contract or by administration, all costs related to the construction shall be recognized as “Construction in Progress” while it is not completed. Upon completion, these costs shall be tra nsferred to an “Investment Property” account when the criteria for recognition of such are met. Example: Entity A constructed a building intended to earn rent income. Contract price is P11,200,000, inclusive of VAT, payable in two progress billings. Advance payment to contractor is 15% of the contract price while retention fee is 10% of the progress  billing. The following are the illustrative accounting entries:   Account Title   Account Code   Debit   Credit   Advances to Contractors   19902010   P   1,680,000   Cash-Modified Disbursement   System (MDS), Regular    10104040   P   1,680,000   To recognize payment of mobilization fee to contractor    Construction in Progress-   Buildings and Other Structures   10610030   P   5,600,000   Advances to Contractors   19902010   P   1,680,000   Accounts Payable   20101010   3,920,000   To recognize first progress billing  –   50% completed   (   P   11,200,000 x 50% =   P   5,600,000  –    P   1,680,000 =   P   3,920,000)   Accounts Payable   20101010   P   3,920,000   Guaranty/Security Deposits   Payable   20401040   P   560,000   Due to BIR    20201010   350,000   Cash-Modified Disbursement   System (MDS), Regular    10104040   3,010,000   To recognize payment for first progress billing   Cash-Tax Remittance Advice   10104070   P   350,000   Subsidy from National   Government   40301010   P   350,000   To recognize constructive receipt of NCA for TRA   Due to BIR    20201010   P   350,000   Cash-Tax Remittance Advice   10104070   P   350,000   To recognize constructive remittance of withholding tax through TRA   Construction in Progress-   Buildings and Other Structures   10610030   P   5,600,000   Accounts Payable   20101010   P   5,600,000   To recognize receipt of final progress billing   Accounts Payable   20101010   P   5,600,000   Guaranty/Security Deposit   Payable   20401040   P   560,000   Due to BIR    20201010   350,000   Cash-Modified Disbursement   System (MDS), Regular    10104040   4,690,000   To recognize payment of final progress billing   148  
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