IAS 40 Questions and suggested solutions.pdf - 1 FINANCIAL...

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FINANCIAL ACCOUNTING 300
IAS 40: INVESTMENT PROPERTY
QUESTIONS AND SUGGESTED SOLUTIONS
K B Leith
DEPARTMENT OF
ACCOUNTING
UP
NB: The mark memoranda should not be taken as cast in stone for all questions of a
similar nature. Marks allocated to a question depend on the difficulty of the question,
the insight required in order to answer the question and thus the time that is required
to complete the question. The mark memoranda are provided to give you a guide as to
the time that will be required to complete the question.
General comment: IAS 40 does not require that land and buildings should be
disclosed in two separate columns in the “Investment Property” note. This applies to
the cost model and the fair value model. Should you choose to do the disclosure using
two columns, you will not be penalised (the marks will be awarded to you) but you will
use more time to prepare disclosure in this way.
QUESTION 1 (16 marks: 24 minutes)
[theory type question; email format used; classification and measurement of
investment property]
SERINGA LIMITED acquired two properties comprising land and office buildings five
years ago from which rental income is earned. A third property comprising vacant land
was acquired during the current financial year for R520 000 and it is currently held for
an undetermined use. Transaction costs of R15 000 were incurred directly related to
the purchase of the vacant land.
Investment property is accounted for in accordance with the fair value model whilst
owner occupied property is accounted for in accordance with the cost model.
On the date of acquisition of this vacant land, there is clear evidence that the fair value
of this property cannot be reliably determinable on a continuing basis since
comparable market transactions are infrequent and alternative reliable estimates of
fair value are not available.
None of these properties have been disposed of during the current year.
The financial director is unsure of how this vacant land should be classified and
measured and has asked you, the financial accountant, to investigate this and report
back to him.

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REQUIRED:
Prepare an email response to this inquiry by the financial director about the
classification and measurement of the vacant land with reference to IAS 40,
Investment Property and IAS 16 , Property, Plant and Equipment, where appropriate .
SUGGESTED SOLUTION (16 marks)
To: Financial [email protected]
From: Financial [email protected] (Never use own or plausible name)
1 mark if complete
Subject: Classification and measurement of vacant land
Date: 2 April 20X13
Dear Sir
In relation to your inquiry about the classification and measurement of the vacant land
acquired during the year, find in the attached Appendix A, the results of my
investigation into these matters.
Should you have any further inquiries, please contact me on xxx xxx xxxx.
Yours faithfully 1 mark if complete
Financial Accountant
Appendix A
IAS 40.5 defines investment property as property (land or building, part of a building,
or both land and a building)