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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 $1.5m ( 11m – 9.5m dep for 2.5 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.
Why 100,000 is deducted from 500,000. If its deprication its already calculated as 100 and added in the aboveHi,
The question wants the net amount recorded in the statement of profit or loss. You’re right in what you’ve calculated regarding the deprecation and the gain on the IP, and all the answer is simply doing is netting them off to get the overall net amount recorded in the statement of profit or loss, i.e. a gain at the reporting date of $0.5m and the depreciation expense of $0.1m from the first six months of the year.
Hope that clears it up for you.
Thanks
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