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Smithson co purchased a new building with a 50-year life for $10 million on 1 January 2003. On 30 June 2005, smithson Co moved out of the building and rented it out to third parties. Smithson Co uses the fair value model for investment properties . At 30 June 2005 the fair value of the property was $11 million and at 31 Dec. 2005 it was $11.5 million
What is the total net amount to be recorded in the SOPL in respect of the office for the year ended 31 Dec. 2005?
Answer : Kaplan kit , income $400,000
I understand that before transfer was to investment property , annual Dep. = $10/50yrs = $0.2m and for the 6 months dep charge ie in 30 June 2005 = $100,000.
Fair value @ $11m meaning revaluation gain transfer to OCI is $1.3m ( 11m – 9.7m dep for 1.5 years ) between 30.06.2005 to 31.12.2005 fair value was 11.5m meaning that $0.5m gain deduct expense of $100,000 meaning it is $400,000.
But my question is between the 30.06.2005 to 31.06.2005 meaning 2 years( from 1.1.2003 when the purchase was made ) depreciation was not accounted for if this calculation was like this.
Is this correct ?“…between the 30.06.2005 to 31.06.2005 meaning 2 years …”
An interesting way to arrive at 2 years!!
Depreciation for the year to 31 December 2003, is $200,000 and for the year to 31 December, 2004 is another $200,000. For the 6 months to 30 June, 2005 it’s a further $100,000
Then there’s the investment property gain in the second half of the year to 31 December, 2005 of $500,000 so the figure in the statement of profit or loss is $400,000 income ($500,000 – $100,000)
That answers the question
There is also a gain in the statement of comprehensive income and that figure is, in my reckoning, $11,000,000 – $9,500,000 ($10,000,000 cost – $500,000 depreciation for 2.5 years) = $1,500,000
Are you sure that you have copied the dates correctly?
OK?
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