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solutions-ch10 - EXERCISE 10-24(a Fair value model If the...

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EXERCISE 10-24 (a) Fair value model If the company chooses to measure the investment property under the fair value model it will have to recognize in net income or loss, for each period, changes in fair value from year to year. Thus, the impact on net income or loss for the various years would be summarized as follows: Year Cost (millions) Carrying Value before adjustment (millions) Fair Value (millions) Net income (loss) 2011 $50 $50 $50 $0 2012 50 60 10 2013 60 63 3 2014 63 58 (5) December 31, 2012 Investment Property – Shopping Mall. ........ 10,000,000 Gain in Value of Investment Property 10,000,000 December 31, 2013 Investment Property – Shopping Mall. ........ 3,000,000 Gain in Value of Investment Property 3,000,000 December 31, 2014 Loss in Value of Investment Property. ........ 5,000,000 Investment Property–Shopping Mall. . 5,000,000 Page 1 of 26
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EXERCISE 10-24 (Continued) (b) Cost model If the company decided to measure the investment property under the cost model it would have to account for it under IAS 16 using the cost model prescribed under that standard (which requires that the asset should be carried at its cost less accumulated depreciation and any accumulated impairment losses). According to IAS 16, when investment property is measured under the cost model, the fluctuations in the fair value of the investment property from year to year are not recorded and thus would have no effect on net income. Instead, depreciation will be the only charge to net income or loss for each period (unless there is impairment, which will also be a charge to the net income or loss for the year). In addition, the building should be componentized into its major components if they have differing useful lives or depreciation patterns. However, in this question, not enough information is given to separate the building into its component parts, thus only one building account has been used. December 31, 2011 (and each December 31 through to 2014) Depreciation Expense – Building. ............... 2,250,000 Accum. Depr. – Building. .................... 2,250,000 ($50,000,000 – $5,000,000) ÷ 20) Page 2 of 26
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*EXERCISE 10-29 (a) Calculation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures Mar. 1 $ 360,000 10/12 $ 300,000 June 1 600,000 7/12 350,000 July 1 1,500,000 6/12 750,000 Dec. 1 1,500,000 1/12 125,000 $3,960,000 $1,525,000 Total weighted-average accumulated expenditures $1,525,000 Less: financed by specific construction loan 3,000,000 Weighted-average accumulated expenditures financed by general borrowings (cannot be less than zero) $0 Capitalization rate calculation on general borrowings: Principal Borrowing Cost 13%, $4 million bond $4,000,000 $520,000 10%, $1.6 million note 1,600,000 160,000 $5,600,000 $680,000 Capitalization rate = $680,000 = 12.14% $5,600,000 Page 3 of 26
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*EXERCISE 10-29 (Continued) Avoidable costs on asset-specific debt ($1,525,000* x 12%)
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solutions-ch10 - EXERCISE 10-24(a Fair value model If the...

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