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FR – L2 – Q27 – Investment Properties

Explain accounting treatment for Vantage Ltd's properties in financial statements for 31 Dec Year 8, noting profit/loss impact.

Question

Vantage Ltd owns several properties and has a year end of 31 December. Wherever possible, Vantage Ltd carries investment properties under the fair value model.

Property 1 was acquired on 1 January Year 1. It had a cost of GHC1 million, comprising GHC500,000 for land and GHC500,000 for buildings. The buildings have a useful life of 40 years. Vantage Ltd uses this property as its head office.

Property 2 was acquired many years ago for GHC1.5 million for its investment potential. On 31 December Year 7 it had a fair value of GHC2.3 million. By 31 December Year 8 its fair value had risen to GHC2.7 million. This property has a useful life of 40 years.

Property 3 was acquired on 30 June Year 2 for GHC2 million for its investment potential. The directors believe that the fair value of this property was GHC3 million on 31 December Year 7 and GHC3.5 million on 31 December Year 8. However, due to the specialised nature of this property, these figures cannot be corroborated. This property has a useful life of 50 years.

Required

(a) For each of the above properties briefly state how it would be treated in the financial statements of Vantage Ltd for the year ended 31 December Year 8, identifying any impact on profit or loss.

(b) Produce an analysis of property, plant and equipment for Vantage Ltd for the year ended 31 December Year 8, showing each of the above properties separately.

Answer

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Tags: Depreciation, Fair Value, Financial Statements, Investment Properties, Plant and equipment, Property
Level: Level 2

Topic: Preparation of Financial Statements

FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

Question

21 SUNDRY QUESTIONS

1 A company purchased some heavy machinery. The invoice for the machinery showed the following items:

GH₵000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH₵3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

2 A business acquired new premises at a cost of GH₵400 million on 1 January 20X5. In the period to the year end of 31 March 20X5 the following further costs were incurred.

	GH₵000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X5?

3 The plant and machinery account for a company for the year ended 30 June 20X5 is as follows.

Plant and machinery account

20X4		GH₵000		GH₵000
1 July	Balance	960,000	31 March	Transfer to disposal account
31 Dec	Cash: purchase of machines	200,000	30 June	Balance
		1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X4 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X5?

4 A motor car was purchased in May 20X2 for GH₵7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X5 with the agreed part exchange value being GH₵2.4 million. The company’s year-end is 31 December.
What was the profit or loss on disposal?

5 A business purchased some land and buildings on 1 January 20X1 for GH₵800 million (land GH₵250 million and buildings GH₵550 million). The buildings are to be depreciated over a period of 50 years.
On 1 January 20X5 the land and buildings were revalued to GH₵1,500 million (land GH₵400 million and buildings GH₵1,100 million). At this date the buildings were believed to have a remaining useful life of 40 years.
What is the original depreciation charge for the buildings and the revised charge from 1 January 20X5?

6 A business purchased land for GH₵250 million and buildings for GH₵400 million on 1 January 20X1. The buildings were to be depreciated over a period of 50 years. On 1 January 20X5 the land was revalued to GH₵520 million and the buildings were revalued at GH₵750 million.
What amount is to be taken to the revaluation reserve on 1 January 20X5?

Answer

Find Related Questions by Tags, levels, etc.

Tags: and Equipment, Depreciation, Inventory Valuation, Machinery Costs, Plant, Property, Revaluation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Tag (SQ): Property

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FR – L2 – Q27 – Investment Properties

Explain accounting treatment for Vantage Ltd's properties in financial statements for 31 Dec Year 8, noting profit/loss impact.

FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

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FR – L2 – Q27 – Investment Properties

Explain accounting treatment for Vantage Ltd's properties in financial statements for 31 Dec Year 8, noting profit/loss impact.

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FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

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