- 10 Marks
PSAF – L2 – Q10.3 – International public sector accounting standards
Question
The National Retirement Oversight Agency acquired a property on 1 January 2021 at a cost of GHc40,000,000 and immediately occupied it as office premise. On acquisition, it was estimated to have a useful life of 50 years. Subsequent to its acquisition, the asset was measured at depreciated cost until 1 October 2024 when management decided to use the building mainly for rentals. Following this decision, the property was fair valued at GHc38,000,000. The National Retirement Oversight Agency adopted the fair value model for subsequent measurement. At 31 December 2024, it was fair valued at GHc39,000,000.
Required:
Account for the treatment of this property in the 2024 financial statements of The National Retirement Oversight Agency.
Answer
Account for the treatment of this property in the 2024 financial statements of the National Retirement Oversight Agency.
The transaction falls under IPSAS 17: Property, plant and equipment and IPSAS 16: Investment Property.
First determine the carrying amount of the premises/property as at October 1 2024 immediately before the change of use.
| Premise | GHC |
|---|---|
| Original cost | 40,000,000 |
| Accumulated depreciation (40,000,000 / 50 * 3.75) | 3,000,000 |
| Carrying amount (1/10/2024) | 37,000,000 |
On 1 October 2024, the National Retirement Oversight Agency decided to use the property mainly for rentals. The property was fair valued at GHc38,000,000 at this point. Following this, the National Retirement Oversight Agency adopted the fair value model for subsequent measurement.
Fair value on change of use (1 October 2024): GHc38,000,000
Fair value at 31 December 2024: GHc39,000,000
Fair value gain is GHc1,000,000 which is recognized in the statement of financial performance as a gain.
Financial statement extract is provided below:
Statement of financial position (extract) as at 31 December 2024
| Non-current asset | GHC |
|---|---|
| Property at fair value | 39,000,000 |
Statement of Financial Performance (Extract) for the year ended 31 December 2024
| Income | GHC |
|---|---|
| Fair value gain | 1,000,000 |
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