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

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Solutions to Gripping IFRS: Graded Questions Investment properties Kolitz & Sowden-Service, 2009 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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