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this is question from june 2007
glove acquired plant with fair value of $6m,in exchange for plant,supplier received land which was currently not in use by glove.the land had a carrying value of $4m and a open market vale of $7m.
my question is what is value of plant that is exchanged,either 6 or 7 and why?
thanks
$6m because that’s the proceeds of the sale of the land and it’s the fair value of the plant
we are going to give a asset of $7m and received a plant with value of $6m and $1m is loss going to report in SOPL.??
No, the market value is $7m. But that isn’t yet, nor ever will be, reflected in the accounting records.
Why do you have a problem? When you buy anything in a shop, you’re likely paying more than its fair value and possibly even more than its market value.
Equally, when you walk past an antique shop, you may recognise some item in the window that has a value rather greater than the marked price so you could pay substantially less than that item’s market value.
Such is life.
In the question you gave me, we gave value to acquire an asset with a market / fair value of $6m. How much value did we give? $6m!
in bpp and kaplan kit answer record the plant with $7m and $3m is charged to retained earning(because land had a carrying vale of $4m)
kaplan answer:
” the exchange has commercial substance since the land generated no immediate economic benefits as it was not being used but the plant will be.The cost of plant will be measured at fair value of asset given up.therefore, the plant will be valued at $7m”
and please explain what the kaplan is trying to explain.
Now then Mohammad ….. this does not make me happy at all! Your original post could so easily have read “This is what Kaplan has done. Can you please explain it.” Instead, you set me a test and apparently I have failed that test.
I do NOT appreciate being made to look stupid and whether or not I agree with Kaplan’s reasoning for their choice of treatment is irrelevant.
Before you post another question for one of my papers, just make sure that there is no “test” element involved because, if there is, you’re on your own. That is, I shall not answer it. The name Mohammad Usman is firmly implanted in my memory, and I shall not forget the public humiliation that you have poured upon me!
🙁
no no. that was not my intention.i apologize if i hurt you.my intention was not to test you.i agree with your first answer that plant should be written at 6m(because in my opinion ias 16 state that initially assets should be recorded at cost, which is fair value of plant i.e $6m)and i am bit confuse why kaplan is doing so,thats why i posted kaplan answer.my intention was not to test you.being a learner i want to clear my concept and i mentioned that it is past paper question
i don’t want to humiliate you. you are very senior and very respectful to me.i don’t want to trick you.you are my teacher . first i have not posted answer because i think it is not good to compare others.but when i feel confusing then i post it and want to seek help from you. i don’t want to prove that you failed.never ever
I said 2 hours ago “forgiven already”
🙂
“the exchange has commercial substance since the land generated no immediate economic benefits as it was not being used but the plant will be.The cost of plant will be measured at fair value of asset given up.therefore, the plant will be valued at $7m”
and please explain what the kaplan is trying to explain.”
Well, even though I’m still not convinced that they are correct (who am I to argue with the great and the good?) the explanation is within what you have quoted from their solution.
What they are saying is that, if you give up an asset worth $7m in exchange for another asset, then the asset you acquire must have that value of $7m
For accounting purposes, that means that you have realised a profit on the disposal of the land ($7m exchange value – $6m carrying value) and you have acquired an asset on the statement of financial position which has cost $7m’s worth of exchanged asset
Does that explain it for you?
Sorry that I didn’t answer your question 2 hours ago. I lost track of where the thread was up to!
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