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Bubble wished to expand its overseas operations and on 1 may 2005 acquired an overseas property with fv of 58.5m dinars. In exchange for the building, bubble paid the supplier with land which bubble had held but for which it had yet to determine its use. The carrying amt of land was $5m but it had open market value of $7m. Bubble was unsure as to how to deal with this transaction and so has transferred $5m from investments property to ppe. The transaction has commercial substance.
In addition, bubble spent $0.5m to help relocate staff to the new property and add this amt to the cost of building. Bubble has made no other entries in its financial statement in relation to property. Bubble has a policy of depreciating property over 35yrs and follows the revaluation model under ias16. As a result of a surge in the market, it is estimated that fv of property is 75m dinars at 31 oct 2005.
1 nov 2004 – 8dinar/$
1 may 2005-9
31 oct 2005- 9.5
Avg – 8.5
What specifically are you stuck on?
Sir, in the above mentioned question a(iii) the staff relocation cost $.05 M which is wrongly capitalised.
Are we supposed to correct the wrong entry?
Because I think the correct entry had to be
Cr Relocation expense
But the entry given in the solution I s
Is this because we are correcting the wrong entry of capitalising the expense?
Yes – good spot – we are showing the CORRECTING ENTRY.