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Plethora plc has an administration building which it no longer needs. On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 cost model. Plethora plc applies the fair value model under IAS 40 Investment property and the fair value of the building was judged to be $800,000 on 1
July 20X9. This valuation had not changed at 31 December 20X9.
What is the amount of the revaluation surplus that will be recognised in respect of the building in ?
A $200,000
B $314,000
C $308,000
D Nil
The answer is B in BPP revision kit, But The increase in the investment property has to be credited to profit or loss in accordance with IAS 40.
Can you explain why the answer is not D?This is an extract from the IASPLUS website on IAS 40 (https://www.iasplus.com/en/standards/ias/ias40)
“The following rules apply for accounting for transfers between categories:
– for a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16 [IAS 40.61]”
Is that OK for you?
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