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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.What would the carrying amount of Property A be at 31 March 20X3 if Speculate used the
cost model for investment properties?the answer as per kaplan is $1,900,000
as i know when property transferred to investment should finish the procedure of PPE up to date of transfer then revalued the asset regardless the model adopted after that hold under investment property as cost or fair value ?
that mean the asset will be 2.3 m at the date of transferred regardless the method adopted ? isn’t ?
why here ignored the fair value and depreciated over all 12 months ? kindly helpHi,
Your understanding is correct if the PPE was help under the revaluation model but it isn’t so it would be treated as normal under IAS 16, so depreciated. Given that it is then held under the cost model for IAS 40 it would then continue to be depreciated.
Thanks
thank you so much
but it is mentioned in the study text of ( kaplan and Bpp) – regardless of the model that PPE held should revalued before transfer to investmentBut…….when an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and they do not change the cost of the property for measurement or disclosure purposes.
Thanks
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