Cash Surrender Value
Illustration by sir:
Paid insurance premium amounting to 150,000 on October 1, 2021
Life insurance expense 150,000
Cash 150,000
December 31, 2021 – adjust (expense method)
Prepaid insurance 112,500
Life insurance expense 112,500
Received dividends amounting to 5,000 on December 31, 2021
Cash 5,000
Life insurance expense 5,000
On December 31, 2024 the cash surrender value of the insurance is at 450,000
2021 3 11,538.46 per month
2022 12
2023 12
2024 12
Total moths 36
Cash surrender value 450,000
Life insurance expense 138,461.54
Retained earnings 311,538.46
Chapter 22 – Investment Property
Illustrative problems in book:
Problem 22-1
1. Compute the total investment property that should be reported in the consolidated
statement of financial position of Classis Company and its subsidiaries.
Land held by the parent for undetermined use 5,000,000
A vacant building owned by the parent to be lease out under operating lease 3,000,000
Building owned by a subsidiary and for which the subsidiary 1,500,000
provides security and maintenance services to the leases
Property under construction for use an investment property 6,000,000
15,500,000
2. Indicate the classification of the assets that are excluded from investment property.
Property held by a subsidiary, a real estate firm, 2,000,000 Inventory
in the ordinary course of business
Property held by the parents for use in the production 4,000,000 Property, plant, and equipment
Land leased by the parent to a subsidiary under 2,500,000 Property, plant, and equipment
an operating lease
Land held for future factory site (determined use) 2,500,000 Property, plant, and equipment
Machinery leased out by the parent to an unrelated 1,000,000 Property, plant, and equipment
party under operating lease
12,000,000
Problem 22-2
1. Cost Model
2021
Investment property 50,000,000
Cash 50,000,000
Depreciation Expense - Investment Property 1,800,000
Accumulated Depreciation - Investment Property 1,800,000
2022
Depreciation Expense - Investment Property 1,800,000
Accumulated Depreciation - Investment Property 1,800,000
2023
Depreciation Expense - Investment Property 1,800,000
Accumulated Depreciation – Investment Property 1,800,000
2. Fair Value Model
January 1, 2021
Investment property 50,000,000
Cash 50,000,000
December 31, 2021
Investment property 5,000,000
Gain on change in Fai Value 5,000,000
December 31, 2022
Loss on change in Fair Value 2,000,000
Investment property 2,000,000
December 31, 2023
Investment property 7,000,000
Gain on change in Fair Value 7,000,000
Problem 22-3
What amount of gain or loss should be recognized for 2023, regarding the disposal of the
property?
Cost 2,200,000
Useful Life 40
Depreciation 55,000
Accumulated
Dep 165,000
Cost 2,200,000
Book Value 2,035,000
Proceeds 2,900,000
Gain 865,000
Problem 22-4
What amount of gain or loss should be recognized for 2022?
Fair value, 2022 9,700,000
Fair value, 2021 10,100,000
Loss on change in Fair value (400,000)
Problem 22-5
What amounts should be carried in the statement of financial position and recognized in
profit or loss for 2022?
Cost 9,000,000
Useful life 30
Depreciation 300,000
Accumulated Depreciation 300,000
Additional Depreciation 300,000
Ending Accumulated
Depreciation 600,000
Cost 9,000,000
Book Value/Carrying Amount 8,400,000
Problem 22-6
What amount of expense should be reported in the income statement for 2022 under the fair
value model and cost model?
Fair Value Cost
31-Dec-22 5,900,000
31-Dec-21 6,000,000
Loss on change in Fair value (100,000)
Cost 5,800,000
Useful life 40
Depreciation expense 145,000
Problem 22-7
What amount should be recognized as gain for 2021 in respect of the investment property?
Fair value, 2021 8,000,000
Cost 7,600,000
Gain 400,000
Problem 22-8
What is the carrying amount of the building on December 31, 2021?
Cost 5,000,000.00
Useful life 20.00
Depreciation/Accumulated
Depreciation 250,000.00
Carrying amount 4,750,000.00
Problem 22-9
What amount should be reported initially as investment property?
Acquisition cost 200,000,000
Nonrefundable transfer
taxes 20,000,000
Legal cost 1,000,000
Total cost 221,000,000
Portion of investment
property 0.90
Investment property 198,900,000
What amount should be reported initially as land to be accounted for as property, plant and
equipment?
Total Cost 221,000,000
Portion used as plant, property and equipment 0.10
Plant, property and equipment 22,100,000
Portion of Land 0.20
Land, PPE 4,420,000
What amount should be reported initially as building to be accounted for as property, plant
and equipment?
Total Cost 221,000,000
Portion used as plant, property and equipment 0.10
Plant, property and equipment 22,100,000
Portion of Land 0.80
Equipment, PPE 17,680,000
What amount should be reported as gain from the increase in fair value of investment
property for the current year?
Fair value, each unit 25,000,000
Number of units 9
Total fair value 225,000,000
Initial cost of Investment property 198,900,000
Gain on change in Fair value 26,100,000
What amount should be reported as depreciation of the building for the current year?
Building, PPE 17,680,000
Useful Life 50
Depreciation 353,600
Problem 22-10
On December 31, 2021, what amount should be recognized in revaluation surplus as a result
of transfer of the building to investment property?
0 - revaluation surplus is only for PPE
On December 31, 2021, what amount should be recognized in profit or loss as a result of
transfer of the building to investment property?
Carrying amount 10,000,000
Fair value 5,000,000
Profit or loss 5,000,000
Problem 22-11
Prepare journal entries from January 1, 2021 to July 31, 2025
2021
Life insurance expense 60,000
Cash 60,000
2022
Life insurance expense 60,000
Cash 600,000
2023
Life insurance expense 60,000
Cash 600,000
Cash surrender value 60,000
Retained Earnings 40,000
Life insurance expense 20,000
2024
Life insurance expense 60,000
Cash 60,000
Cash surrender value 24,000
Life insurance expense 24,000
2025
Life insurance expense 60,000
Cash 60,000
Cash surrender value 16,000
Life insurance expense 16,000
Cash 2,000,000
Cash surrender value 100,000
Life insurance expense 30,000
Gain on life insurance settlement 1,870,000
Problem 22-12
Prepare journal entries for 2022, 2023, 2024
2021
Life insurance expense 80,000
Cash 80,000
2022
Life insurance expense 80,000
Cash 80,000
2023
Life insurance expense 80,000
Cash 80,000
Cash 5,000
Life insurance expense 5,000
Cash surrender value 42,000
Retained Earnings 28,000
Life insurance expense 14,000
2024
Life insurance expense 80,000
Cash 80,000
Cash 6,000
Life insurance expense 6,000
Cash surrender value 5,000
Life insurance expense 5,000
Problem 22-14
What amount should be reported as life insurance expense for the current year?
Life insurance premium 20,000
Increase in cash surrender value 10,500
Dividends received 3,000
Life insurance expense 6,500
Problem 22-15
What amount should be reported as life insurance expense for the current year?
Life insurance premium 40,000
Increase in cash surrender value 21,000
Life insurance expense 19,000
Problem 22-16
What amount should be reported as gain on life insurance expense settlement for 2021?
Proceeds 2,000,000
Cash surrender value 18,000
Unused premium 20,000
Gain on settlement 1,962,000
What amount should be reported as life insurance expense for 2021?
Premiums paid 80,000
Unused portion 20,000
Increase in Cash surrender value 3,000
Expense 57,000
Supported calculation for the two questions:
Cash surrender value, 2021 19,000
Cash surrender value, 2020 15,000
4,000
Pro-rate 0.75
Increase 3,000
Cash surrender value, 2020 15,000
Increase 3,000
Cash surrender value, 10/01/2021 18,000
