Reference no: EM132960300

On July 1, 2021, Mr. Krabs Company purchases an investment property at a cost of P50,000,000 including transaction costs for a total amount of P500,000. On October 1, 2021, the fair value of the property increases to P51,000,000. At December 31, 2021, the fair value of the property is P 48,000,000. The rental income received per quarter is P1,500,000. The property has a useful life of 50 years.

Problem 1: If the company uses the cost model, what is the net effect on the profit or loss for the six months ended December 31, 2021 in relation to the investment property?

a. (P500,000)

b. 1,500,000

c. P1,200,000

d. 2,000,000

Problem 2: If the company uses the fair value model, what is the net effect on the profit or loss for the six months ended December 31, 2021 in relation to the investment property?

a. 1,200,000

b. 2,000,000

c. 1,500,000

d. 3,500,000