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Plethora PLC has an administration building which it no longer needs, On 1 July 2009, plethora entered an agreement to lease the building out to another company. The building cost 600,000 on Jan 2000 and is being depreciated over 50 years, based on IAS 16 cost model. Plethora applies fair value model under IAS 40 and the fair value of the building was judged to be 800,000 on 1 July 2009. This valuation had not changed at 31 December 2009
What amount would be shown as Revaluation Surplus in respect of this building?
A) 200,000
B) 314,000
C) 308,000
D) NilAnswer is B
Sir, my question is that the building follows IAS 16 cost model, so there wont be any revalued amount. And once it is turned into investment property, it follows IAS 40 fair value model. So according to this question, fair value was judged after it was classified as investment property and thus any gain should be transferred to profit and loss.
So in that case, shouldn’t the answer be – nil?
No, on the occasion of moving PPE to Investment Property, the requirement is to value the property at fair value and THEN do the transfer
So what we have here is $800,000 fair value less $486,000
That $486,000 is $600,000 original cost less 9.5 years at $12,000 per year
Clear?
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