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Hi Mike,
I have a question as the following:
Speculate owns the following properties at 1 April 2012:
Property A: An office building used by Speculate for administrative purposes with a depreciated historical cost of $2 million. At 1 April 2012 it had a remaining life of 20 years. After a reorganisation on 1 October 2012, the property was let to a third party and reclassified as an investment property applying Speculate’s policy of the fair value model. An independent valuer assessed the property to have a fair value of $2•3 million at 1 October 2012, which had risen to $2•34 million at 31 March 2013.
Property B: Another office building sub-let to a subsidiary of Speculate. At 1 April 2012, it had a fair value of $1•5 million which had risen to $1•65 million at 31 March 2013.
Answer:
Statement of PL:
Gain on IP: A: 2340-2300 40
B: 1650-1500 150
OCI: (as below) 350
Statement of FP:
IP (A+B) 2340 + 1650
Equity :
Revaluation reserve (2300-(2000-50)) 350I don’t understand why treatment B as IP ? it’s asset of group, use by Someone in group so it should be under IAS 16?
and A at 1 oct 2012 reclassed as IP so before that day we should treatment under IAS 16? That’s why we have Revaluation reserve of A?
Please explain it for me,
Thank you very much 🙂What EXACTLY does the question ask you for?
Then post again if you need to!
I’m sorry.
This is A question:
(b) Speculate owns the following properties at 1 April 2012:
Property A: An office building used by Speculate for administrative purposes with a depreciated historical cost of $2 million. At 1 April 2012 it had a remaining life of 20 years. After a reorganisation on 1 October 2012, the property was let to a third party and reclassified as an investment property applying Speculate’s policy of the fair value model. An independent valuer assessed the property to have a fair value of $2•3 million at 1 October 2012, which had risen to $2•34 million at 31 March 2013.
Property B: Another office building sub-let to a subsidiary of Speculate. At 1 April 2012, it had a fair value of $1•5 million which had risen to $1•65 million at 31 March 2013.
Required:
Prepare extracts from Speculate’s entity statement of profit or loss and other
comprehensive income and statement of financial position for the year ended 31 March 2013 in respect of the above properties. In the case of property B only, state how it would be classified in Speculate’s consolidated statement of financial position.
Note: Ignore deferred tax.Answer:
Statement of PL:
Gain on IP: A: 2340-2300 =40
B: 1650-1500 =150
OCI: (as below) =350
Statement of FP:
IP (A+B) 2340 + 1650
Equity :
Revaluation reserve (2300-(2000-50))= 350I don’t understand why treatment B as IP ? it’s asset of group, use by Someone in group so it should be under IAS 16?
and A at 1 oct 2012 reclassed as IP so before that day we should treatment under IAS 16? That’s why we have Revaluation reserve of A?
Please explain it for me,
Thank you very much ?This is what I asked you for in my last response – I don’t need the whole question again!
Here’s what I wanted
“Required:
Prepare extracts from Speculate’s entity statement of profit or loss and other
comprehensive income and statement of financial position for the year ended 31 March 2013 in respect of the above properties. In the case of property B only, state how it would be classified in Speculate’s consolidated statement of financial position.”Important phrases / words in this question requirement are:
“Speculate’s entity statement of profit or loss” and
“In the case of property B only, state how it would be classified in Speculate’s consolidated statement of financial position”
For the first one the question is asking for Speculate’s OWN individual treatment and in this case, for the individual financial statements of Speculate entity, the revaluation of the asset property B will be treated as normal
However, when we start consolidating, we recognise that the occupier is a group entity and the property, for consolidation purposes, cannot be treated as an ordinary property with ordinary revaluation and must instead be treated under IAS 16
I do believe that there is a comment about this very problem within the printed solution … or am I wrong?
I’m still not clear. I copied the right answer. This is Q5b June 2013 question .
I wonder why gain in revaluation of B go to P/L ? It should be revaluation surplus under IAS 16 ?Because, in Speculate’s own entity (not consolidation) financial statements, property B IS an investment property
But when we come to consolidating, we are not allowed to treat it as investment property because it’s rented to a related entity
So, in answering the second part of the requirement, the consolidation implications, we have to treat property B as PPE under IAS 16 but for the first part of the requirement, Speculate’s OWN financial statements, Speculate will treat property B as investment property
I have learned about ” Speculate” meaning on the internet, but I still don’t understand what it is. Could you please explain this term for me?
Are you asking me “What is the meaning of the word ‘speculate’?”
What does your Viet / English dictionary say?
How about “to consider or discuss why something has happened or what might happen”
or, in a business context
“to take the risk of investing your money in a company in the hope that you can make a big profit later by selling the shares that you buy”
Is that what you wanted?
Speculate owns two properties and uses fair value accounting where possible.
Property A: An office building used by Speculate for administrative purposes. At 1 April 20X2 it
had a carrying amount of $2 million and a remaining life of 20 years. On 1 October 20X2, the
property was let to a third party and reclassified as an investment property. The property had a
fair value of $2.3 million at 1 October 20X2, and $2.34 million at 31 March 20X3.
Property B: Another office building let on a 12?month lease to a subsidiary of Speculate. At 1 April
20X2, it had a fair value of $1.5 million which had risen to $1.65 million at 31 March 20X3.What is the correct treatment when Property A is reclassified as an investment property?
A Take $350,000 gain to other comprehensive income
B Take $350,000 gain to the statement of profit or loss
C Take $400,000 gain to other comprehensive income
D Take $400,000 gain to the statement of profit or loss.
can you explain me this problem?
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