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June 4, 2023 at 12:58 pm
For the SOFP, at Y.e, IP is increased by 21,600 to account for the revaluation at FV. Is it appropriate to also say that Property is decreased by (19,500) [FV after 500 depreciation] and IP shows 21,000 as at 01/07/15 to account for the “reallocation” of the property from admin purposes to investment purposes.
For example, there may be other properties under the ownership of the company but we only discussion to transfer of one property to IP, so In figure rather than ignoring property altogether in SOFP, it’s better to address it’s transfer to IP?
December 2, 2020 at 10:54 am
Liverpool!! oh yeahh you go Chris, anyways great lectures mate !!
October 1, 2020 at 6:15 pm
Why haven’t you shown the Revaluation Reserve under SFP for the $1.5m?
April 1, 2021 at 9:54 am
He did it $1.5m go to SFPOCI under OCI section
June 7, 2020 at 1:51 pm
In the study text (BPP) and other sources mention that a property that is under construction for future use as Investment Property is treated as Investment property and not as PPE uner IAS 16!! https://www.iasplus.com/en/standards/ias/ias40
June 9, 2020 at 2:21 pm
I agree with you. IAS 40 specifically gives examples of Investment Property and among others there’s specifically “property under construction for the future use as an investment property”. It also states how to measure Investment Property under construction. It refers to IAS 16 indeed though, in cases when entity can’t measure FV of IP under construction reliably. Maybe that’s what tutor wanted to say?
That despite the fact it’s treated as IP it still will most probably be measured at cost under IAS 16 until it’s ready for use.
October 27, 2019 at 9:10 pm
Amount in OCI, does it get recycled to P&L? thanks
June 9, 2020 at 4:52 pm
Not until we decide to sell IP. Until sale of IP OCI amount would remain unchanged and all revaluations would go through PL, without any effect on OCI
August 31, 2019 at 10:13 am
Speaking of directly attributable costs, if purchase tax is irrecoverable, it is capitalised. ??? I dont get it. Please help me. Thank you.
October 26, 2019 at 8:11 am
Yes, it will be capitalised as long as it is irrecoverable.
August 17, 2019 at 11:07 am
if a property is classified as IP valued under cost model, do we have to depreciate the property?
October 26, 2019 at 8:24 am
Investment properties should initially be recognised at cost. However, for subsequent measurement we have 2 options under IAS 40, one is cost cost model and the other being fair value model. Once a method has been chosen it should be applied consistently and to all investment properties.
Now, in case of cost model, investment property would be depreciated normally like any other property, plant and equipment. No year end revaluations would be accounted for, unless it is downward, in which we would record an impairment loss(Dr SPL).
July 16, 2019 at 9:30 am
The property will be depreciated for the first six-months – $0.5 million. Then Carrying value = $20 million – $0.5 million = $19.5 It’s OK. Then The property is revalued to its fair value of $21 million on 1 July 2015 = $21 million – $19.5 million = gain through other comprehensive income of $1.5 million (Rev. srpl) It’s OK too. Then The property is now classified as investment property and no longer depreciated. It’s OK too. Then It is revalued to a fair value of $21.6 million at the reporting date with the gain of $0.6 million going through profit or loss..
Question. What will be happen with $1.5 million (Rev. srpl) for next years. For example if next year fair value will be a $19 million. Then can we use 21.6-19=2.6 million from $1.5 million (Rev. srpl) I mean Rev.surp will be 0 and the remaining amount 2.6-1.5 = 1.1 million go to profit or loss like loss. Is that right ?
June 9, 2020 at 3:07 pm
No. IP is revalued at FV through PL. If we have something in OCI it doesn’t give us the right to use it for lowering our current year losses in PL, it would mislead our shareholders on FV losses.
OCI is accumulating PPE revaluations while we own the asset, and only transfers to PL when we sell it. Otherwise we would be showing PL gains and losses while actually not having any, because our PPE is still on our balance sheet.
Same for IP if it was previously a PPE. OCI can only be released to RE when sell IP (see paragraph 62 ii on transfer from PPE to IP of IAS 40):
(ii) any remaining part of the increase is recognised in other comprehensive income and increases the revaluation surplus within equity. On subsequent disposal of the investment property, the revaluation surplus included in equity may be transferred to retained earnings. The transfer from revaluation surplus to retained earnings is not made through profit or loss.
June 24, 2019 at 8:26 pm
When subsesquently we use FV Model why we do not charge depreciation? Reasons?
June 25, 2019 at 7:06 am
In a fair value model, you revalue the asset at each year end, so there is no requirement to charge depreciation
June 9, 2020 at 4:45 pm
Because of the nature of fair value. No one would buy a property from you for $100 if it’s depreciated to $80 let’s say. Instead, a potential buyer would buy it for $80. So instead of depreciation you account FV loss. Basically FV already includes any impairment or depreciation in it’s idea. IFRS 13 topic will give you more ideas on it.
It’s a simple example that doesn’t include any positive fluctuations on price, but I think it gives an idea.
April 1, 2019 at 11:28 pm
With reference to the inventory transfer to IP – so we calculate the difference between cost/nrv (depending on what’s lower) and FV and this difference goes to SPL?
June 9, 2020 at 4:49 pm
Yes. Once it’s in Inventories it should be accounted for at the lowest of Cost or NRV. One of them is considered a Carrying Value.
IAS 40 says that we take the difference between CV and FV, and charge the difference to PL.
Paragraph 63 and 64 of IAS 40: “For a transfer from inventories to investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss. The treatment of transfers from inventories to investment property that will be carried at fair value is consistent with the treatment of sales of inventories.”
February 4, 2019 at 7:34 pm
Also the gain on PPE is 1500 and it comes under OCI right. But at the same time shouldnt it comes under Revaluation Reserve as 1500 in SFP ?
February 4, 2019 at 7:22 pm
I didnt know that you were a liverpool fan <3 . Hope they gonna raise the PL trophy this season. Btw your lectures were amazing!!!
September 13, 2018 at 1:59 pm
Hey, you realised there was a mistake – depreciation should be 1000, but then you didnt change it to 1000, you left it as 500, so the answer is wrong.
December 31, 2018 at 1:20 pm
Hey, there is no mistake as the change in usage took place half way through the year and so we only have 6 months of depreciation, which is 500 and not 1,000 as you state.
August 3, 2018 at 10:05 am
Hi sir 19500-21000=1500 is 1500 revaluation surplus?
August 3, 2018 at 12:52 pm
For a change in use from PPE to IP we revalue under IAS 16 before the transfer to IP, therefore the revalution will go through other comprehensive income (revaluation surplus).
September 15, 2018 at 5:26 pm
Thank you for the video.
In relation to the 1,500 OCI surplus. Would you also have to add to the SOFP a Revaluation Surplus of 1,500 in equity? Because the journal is:
Dr PPE (SOFP) 1,500 Cr Revaluation Surplus (SOFP and OCI) 1,500
And the journal to record the Gain on the Investment Property is: Dr PPE (SOFP) 600 Cr Gain on Investment Property (SPLOCI) 600
Is this correct?
June 9, 2020 at 2:53 pm
It will definitely be added to SFP.
But for revaluation entries are
Dr PPE (SFP) 1,000 Dr Acc depreciation (SFP) 500 Cr Reval surplus (SFP + OCI) 1,500
June 21, 2018 at 7:22 am
Thanks for the lecture, the only thing I want to ask is the following.
As you said, if owner occupied property is transfering to IP then it is revalued under IAS 16 and then treated as IP.
So, on 1st of July it was transferred to IP and its cost was 19.5k and NRV (fair value) was 21 mln. Why we dont take the lowest one which is 19.5?
June 21, 2018 at 8:52 am
Glad you’re finding the lectures useful.
We revalue to fair value, which here is the 21 million, so will use this figure.
October 31, 2018 at 11:40 pm
Is it correct to take the 19.5k instead of the 21 million if we were transferring from IAS 16 to IAS 2? Great video. Thanks
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