• 3 Marks

FR – Nov 2016 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculate the carrying amount of investment property in accordance with IAS 40.

c) Tanoso owns the following properties as at 31 December 2015:

Property Fair Value (GH¢million)
Land with future use undetermined 3.2
Factory rented to Tanoso’s subsidiary under an operating lease 2.4
10-floor office building (fair value is equal per floor), 3 floors used as the subsidiary’s head office, and 7 floors rented to third parties under an operating lease 15.0
Empty building held for capital appreciation, but not leased out 4.1

Tanoso’s accounting policy is to hold its investment properties under the fair value model and its land and buildings under the revaluation model.

Required:
In accordance with IAS 40 Investment Property, calculate the carrying amount to be recognised as investment property in Tanoso’s consolidated financial statements as at 31 December 2015.

Property Carrying Amount (GH¢million)
Land with future use undetermined 3.2
Factory rented to Tanoso’s subsidiary –
10-floor office building (7/10 x 15.0) 10.5
Empty building held for capital appreciation 4.1

Total Investment Property = 3.2 + 10.5 + 4.1 = GH¢17.8 million

Explanation:

  • Land with future use undetermined qualifies as investment property as it is held for capital appreciation.
  • The factory rented to the subsidiary does not qualify as an investment property, as it is owner-occupied.
  • The 10-floor office building is partially an investment property (7 floors rented out under operating leases).
  • The empty building is classified as an investment property since it is held for capital appreciation.
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