On January 01, 2020, Sisig Corp. acquired an investment property, and the initial cost of the investment property was P5,000,000. On the acquisition date, the company chooses the cost model to account for its investment. As of December 31, 2020, it has a carrying value of P4,900,000 and a fair value of P5,100,000. On December 31, 2021, the company decided to transfer the investment property to owner-occupied property that is also under the cost model. On the date of transfer, the fair value of the property is P5,000,000 while its carrying value was P4,800,000. What amount of gain or loss on transfer should the company recognize on December 31, 2021? a. P300,000 loss b. P200,000 loss c. No gain or loss d. P100,000 loss
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 01, 2020, Sisig Corp. acquired an investment property, and the initial cost of the investment property was P5,000,000. On the acquisition date, the company chooses the cost model to account for its investment. As of December 31, 2020, it has a carrying value of P4,900,000 and a fair value of P5,100,000.
On December 31, 2021, the company decided to transfer the investment property to owner-occupied property that is also under the cost model. On the date of transfer, the fair value of the property is P5,000,000 while its carrying value was P4,800,000.
What amount of gain or loss on transfer should the company recognize on December 31, 2021?
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