Chapter 12

Chapter 12 - Solutions to Gripping IFRS: Graded Questions...

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Solutions to Gripping IFRS: Graded Questions Investment properties Chapter 12: Page 1 Solution 12.1 a) An investment property is held for rental income or capital appreciation whereas an owner-occupied property is used by the entity in the production of goods or services or for administration purposes. b) A comparison of the models allowed in terms of IAS 40 for investment properties with the models allowed in terms of IAS 16 for property, plant and equipment is as follows: Property, plant and equipment may be measured under the cost model or revaluation model. Investment properties may be measured under the cost model or fair value model. The cost model is the same in both cases. The revaluation model requires that increases/ decreases above HCA be recognised as other comprehensive income (revaluation surplus: equity) whereas increases and decreases below HCA are to be recognised in profit or loss The fair value model requires that all increases/ decreases, irrespective of the HCA be recognised directly in profit or loss. HCA: historical carrying amount (depreciated historic cost). c) The four scenarios under which a transfer may be made into investment property or from investment property from/ to another asset are as follows: From investment property to: i) Inventories: when development for future sale begins ii) Property, plant and equipment: when owner-occupation begins From property, plant and equipment to: iii) Investment property: when owners move out From inventories to: iv) Investment property: when operating lease begins.
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Solutions to Gripping IFRS: Graded Questions Investment properties Chapter 12: Page 2 Solution 12.2 Introduction The farm is used: by Splurge Limited for milking and grazing (stand-alone shed and 40 hectares of land); and to earn rentals (from the 160 hectares and four sheds). According to IAS 40 if a building is owner occupied building and can be sold separately (which it can because it has separate title deeds) it must be disclosed as property, plant and equipment in accordance with IAS 16. Owner-occupied This means that the owner-occupied stand-alone shed together with the related 40 hectares must be measured using either: the cost model; or revaluation model. Whichever model is used, the property will be initially measured at cost. Assuming that all the sheds are similar, the owner-occupied shed and 40 hectares should be recorded at C400 000 (C2 000 000 x 40 / 200 hectares). Cost model: The cost model entails measuring the asset at cost less accumulated depreciation and impairment losses. Revaluation model: The revaluation model entails measuring the asset at fair value less subsequent accumulated depreciation and impairment losses. If the revaluation model is adopted and a revaluation to fair value results in an increase in carrying amount above its historical carrying amount, this
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This note was uploaded on 03/19/2012 for the course ACCT 100 taught by Professor Ayeshab during the Spring '12 term at Alvin CC.

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Chapter 12 - Solutions to Gripping IFRS: Graded Questions...

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