- April 21, 2020 at 1:48 pm
As per IAS 40, on initial recognition investment property should be measured at cost + directly attributable costs and subsequent to initial recognition-has a choice between cost model and FV model.
Assume that a property was constructed for future use as investment property and has a cost of $ 4m on 01 May 2018. It has a useful life of 8 years.
If the fair value of the investment property is $ 5m on 31 Oct 2018.
The company has a year end of 31 December 2018 and it has an accounting policy to use the fair value model.
Do a depreciation charge has to made for the period 01 May 2018 to 31 Oct 2018??
Or is it accounted directly at $5m.
That is, is the answer should be:
Cost = $4m- $0.25m(Depreciation)=$3.75m
Then revalued to $5m(FV). That is a revaluation surplus of $1.25
No depreciation to be made. Directly accounted as $5m and a revaluation surplus of $1m
Kindly help.April 23, 2020 at 8:14 pm
I think you need to rework the IAS 40 lectures/notes. Under the fair value model, no depreciation is charged. The useful life figure given is trying to trick you, just ignore it.
The asset is help at $5m at the reporting date and the $1m gain goes through profit or loss.
The revaluation surplus is only used for revaluation of PPE and this is a change in value of IP and so goes through profit or loss.
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