IFRS - Are we good to go - Week 2 - IAS 40

Which one of the following would be recognised as an investment property under IAS 40 in the consolidated financial statements of Buildco?

• A property intended for sale in the ordinary course of business

• A property being constructed for a customer

• A property held by Buildco under a finance lease and leased out under an operating lease

• A property owned by Buildco and leased out to a subsidiary

Which one of the following is NOT TRUE concerning the treatment of investment properties under IAS 40?

• Following initial recognition, investment property can be held at either cost or fair value.

• If an investment property is held at fair value, this must be applied to all of the entity's investment property.

• An investment property is initially measured at cost, including transaction costs.

• A gain or loss arising from a change in the fair value of an investment property should be recognised in other comprehensive income.

Plethora plc has an administration building which it no longer needs. On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 cost model. Plethora plc applies the fair value model under IAS 40 - Investment property and the fair value of the building was judged to be $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.

What is the amount of the revaluation surplus that will be recognised in respect of the building?

• $200,000

• $314,000

• $308,000

• Nil

Under IAS 40, Investment Property, which additional disclosure must be made when an entity chooses the cost model as its accounting policy for investment property?

• The present value of the property

• The value in use of the property

• The net realisable value of the property

• The fair value of the property

Hook Ltd (Hook) purchases an investment property on 1 July 20X0 for $100 000. At 30 June 20X1, Hook determines the fair value of the investment property to be $150 000. Hook’s accounting policy is to measure investment properties at fair value.

Which one of the following journal entries is processed by Hook on 30 June 20X1?

• No entry is required

• Dr. Investment property $50 000/Cr. Rental revenue $50 000

• Dr. Investment property $50 000/Cr. Asset revaluation reserve $50 000

• Dr. Investment property $50 000/Cr. Gain on revaluation (profit or loss) $50 000

Anchor Ltd (Anchor) purchases an investment property on 1 July 20X0 for $100 000. At 30 June 20X1, Anchor determines the fair value of the investment property to be $150 000. At 30 June 20X2, the fair value of the investment property had fallen to $80 000. Anchor’s accounting policy is to carry investment properties at fair value.

Which one of the following journal entries is processed by Anchor on 30 June 20X2?

• Dr. Asset revaluation reserve $70 000/Cr. Investment property $70 000

• Dr. Asset revaluation reserve $50 000/Dr. Loss on revaluation (profit or loss) $20 000/Cr. Investment property $70 000

• Dr. Loss on revaluation (profit or loss) $50 000/Cr. Investment property $50 000

• Dr. Loss on revaluation (profit or loss) $70 000/Cr. Investment property $70 000

Which TWO of the following properties fall under the definition of investment property and therefore within the scope of IAS 40?

(i) Property occupied by an employee paying market rent

(ii) A building owned by an entity and leased out under an operating lease

(iii) Property being constructed on behalf of 3rd parties

(iv) Land held for long term appreciation

• (i) and (ii)

• (ii) and (iii)

• (ii) and (iv)

• (iii) and (iv)

If a property is partly an investment property, and partly owner-occupied, the firm should account for the property:

• As owner-occupied

• Investment properties

• Each portion should be accounted for separately

Speculate owned an office building with a depreciated historical cost of $2 million and a remaining useful life of 20 years at 1 April 20X2. On 1 October 20X2 Speculate ceased to occupy the building and let it out to a third party. The property was reclassified as an investment property, applying the revaluation model in accordance with IAS 40 Investment Property. The value of the property was independently assessed at $2.3 million at 1 October 20X2 and had risen to $2.34 million by 31 March 20X3.

What amount will be charged/credited to profit or loss in respect of this property for the year ended 31 March 20X3?

• Credit $40,000

• Charge $50,000

• Charge $10,000

• No charge or credit

Which TWO of the following disclosures must be made when fair value model is adopted?

(i) Net gains or losses from fair value adjustments

(ii) Useful lives or depreciation rates used

(iii) The amount of impairment losses recognized

(iv) Additions resulting from acquisitions through business combinations

• (i) and (ii)

• (i) and (iv)

• (ii) and (iv)

• (iii) and (iv)