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Dear Sir,
I would highly appreciate your help on the below question:
K Co had been renting out a vacant property for many years under the fair value model. At 1 January 20X1, the property had a fair value in K Co’s financial statements of $12 million. On 1 July 20X1, K Co decided to move back into the property following the end of the rental agreement with the tenants. At this date the asset had a fair value of $14 million and a remaining useful life of 14 years.
What amount should be recorded in K Co Supply for the year ended 31 December 20X1?
Please show detailed workings.
Thanking you beforehand.
Hi,
Happy to answer the question once I’ve seen you make an attempt at it. I can then highlight where you’ve gone wrong and point out how to correct it.
To help you with answering the question then we have a change in use of the IP. Once the company has moved back in then it is now PPE, so we take the FV at the date of change and treat it under the rules of IAS 16.
Have a go and see how you get on. I’ll then help further if required.
Thanks
i am not being able to understand the first question.im not getting the answers .. can you explain please?
Dear Sir,
I guess the answer should be:
SOPL
Dep for the year ($14m/14yrs *6/12) $500,000
SOFP
NCA:
Property ($14m – $500,000) $13,500,000Most grateful if you could confirm if my answer is correct.
Thanks.
Correct! The asset is recognised at fair value following the change in use to PPE and depreciated over the six months. We would also have a gain of $2 million through profit or loss on the change in use as the asset is uplifted from $12 million to $14 million being its up to date fair value.
Thanks and top work.
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