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Hi Tutor, I have a question relating to investment property which seemed to be confusing for me.I am gonna touch this case why I did not get it:(
Thanks in advance
Trial balance at 30 September 20X5
Investment properties at FV-20000
Land($5million) and buildings-at cost-35000
Plant and Equipment-at cost-58500Accumulated depreciation at 1 October 20X4: Buildings-20000
Plant and Equipment -34500Note:
On 1 October 20X4, Kandy owned two investment properties.The first property had a carrying amount of $15 million and was sold on 1 December 20X4 for $17 million.The disposal proceeds have been credited to a suspense account in the trial balance above.On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years.
The price of property has increased significantly in recent years and so the directors decided to revalue the land and buildings .The directors accepted the report of an independent surveyor who, on 1 October 20×4, valued the land at $8 million and the building at $39000 on that date.This revaluation specifically excludes the transferred investment property described above.The remaining life of these buildings at 1 October 20×4 was 15 years.
Plant and equipment is depreciated at 12,5% per annum using the reducing balance method
No depreciation charged to 30 September 20×5.
Solution:
Land is not depreciation so-5000
Revaluation surplus at 1 October 20X4 -3000
Revised Carrying value ———– 8000Building-30000
AD at 1 october 20X4 (20000)
Carrying value at 1 October20X4=10000
Revaluation Surplus at 1 October 20X4–29000
Revised carrying value at 1 october 20X4=39000
Depreciation charge for the year (2600)
39000/15=2600
Carrying Value at 30 September 30=36400Profit on disposal 15000-17000=2000
On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years. -Here it says transferred from investment property to owner-occupied that is why depreciated P/P/E? Did i get it right?
Investment property 20000-15000=5000
Land($5 million) and building—–35000
35000-20000(AD)=15000
On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years. -Here it says transferred from investment property to owner-occupied that is why depreciated P/P/E? Did i get it right?
Gain on revaluation of investment property prior to transfer (6000-5000)=1000
Here is 5000 is the value of Land or deducted from investment property’s 5000?
question arising from here that 5000 is derived deducted amount and which increased to 6000 and after 6000 became PPE and that is why depreciated? and this creates ”Gain on revaluation of investment property prior to transfer (6000-5000)=1000”DID i get it right?
Here is investment property 20000 in trial balance is the result of 15000 of land and building after deduction accumulated depreciation and the rest 5000 belongs second investment property and became PPE with the amount of 6000 and depreciated.
It created 1000 Gain on revaluation of investment property prior to transfer.
By explaining, i think found the answer of question by myself.
Sometimes self analysis helps understand in-depth.I need your confirmation too
I totally agree with everything in your first post (although I still struggle with your “AD”!)
I’m not sure that I fully understand your second post and particularly the expression “after deduction accumulated depreciation” – there is no depreciation on the investment property
Otherwise, your logic and calculations appear to be correct
OK?
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