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Tutorial Investment Properties

1. The company wanted to switch the fair value model for its investment property to the cost model after development was completed. However, MFRS 140 does not allow this as investment property must be measured at fair value. 2. Assets like land held for appreciation and property leased out under operating leases qualify as investment properties per MFRS 140. Properties developed for third parties and leased out under finance leases also qualify. A hotel owned and managed by the company itself does not qualify. 3. The company cannot switch its investment property's valuation to cost after development as MFRS 140 requires fair value measurement for investment properties.

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175 views

Tutorial Investment Properties

1. The company wanted to switch the fair value model for its investment property to the cost model after development was completed. However, MFRS 140 does not allow this as investment property must be measured at fair value. 2. Assets like land held for appreciation and property leased out under operating leases qualify as investment properties per MFRS 140. Properties developed for third parties and leased out under finance leases also qualify. A hotel owned and managed by the company itself does not qualify. 3. The company cannot switch its investment property's valuation to cost after development as MFRS 140 requires fair value measurement for investment properties.

Uploaded by

nadya bujang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1 ACC6053 Advanced Accounting 1_Tutorial_Investment properties

Q1

A company acquired an investment property in Damansara for development and


measured the fair value at RM15 million. Once the development was completed, the
company contended that it cannot determine the fair value of the property and wanted
to switch the valuation to the cost model.

Required:

Explain why the company’s decision is not permitted by MFRS 140 Investment Property.

Q2

Identify and explain whether or not the following assets are “Investment Property”
according to MFRS 140 Investment Property:

i. Land held for long term capital appreciation.


ii. A building owned by a company and leased out under an operating lease.
iii. Properties developed on behalf of third parties.
iv. A property that is leased to another party under finance lease.
v. A hotel owned and managed by the company itself.

Q3

A company acquired an investment property in Damansara for development and


measured the fair value at RM15 million. Once the development was completed, the
company contended that it cannot determine the fair value of the property and wanted
to switch the valuation to the cost model.

Required:
Explain why the company’s decision is not permitted by MFRS 140 Investment Property.

Q4

The following information was taken from the financial statements of Sungai Dua Bhd
at 30 June 2007:

Non-current assets RM’000


Property, plant and equipment (see note (1)) 112,380
Investment properties 61,700
2 ACC6053 Advanced Accounting 1_Tutorial_Investment properties

1. Included in the property, plant and equipment at 30 June 2007 were:


a. Building with a carrying value of RM9,150,000 (cost RM12,200,000)
classified as held for sale.
b. Plant under construction of RM9,100,000.
c. Long-term leasehold land with a cost of RM24,000,000 and accumulated
depreciation of RM4,800,000.
2. The property, plant and equipment are stated at cost or valuation less
accumulated depreciation and impairment losses. The estimated useful lives are
as follows:
Long-term leasehold land - 50 years
Buildings - 40 years
Motor vehicles - 5 years
Plant and machinery - 10 years
3. The investment properties were initially measured at cost and subsequently at
fair value, with any changes therein recognised in the income statement.

The following information relates to the property, plant and equipment for the year
ended 30 June 2008:

a. On 1 July 2007, Sungai Dua relocated its business operations due to expansion.
The building, which was used for its business operations, was transferred to
investment property on that date. The present building which Sungai Dua
occupied as its headquarters was acquired on 1 July 2002 at a cost of
RM4,250,000. Sungai Dua adopts the revaluation model for its building under
FRS 116 Property, plant and equipment. The building was previously revalued on
30 June 2005 to RM3,750,000. The fair value of the building on 1 July 2007 and
30 June 2008 was RM4,000,000 and RM4,100,000 respectively.
b. On 1 January 2006 Sungai Dua started construction on a plant at Tanjung Malim.
The estimated total costs of construction was RM12,500,000, and it was expected
that the construction will be completed on 31 December 2007. In order to
finance part of the construction, Sungai Dua obtained a 5 year long-term loan of
RM5,000,000 from a local bank on 1 November 2005. The interest rate was 8%
per annum. The total costs of construction for the year ended 30 June 2006 was
RM4,900,000.

On 1 July 2006, Sungai Dua suspended the construction of the plant due to the
shortage of raw materials. The construction recommenced on 1 September 2006
after the necessary materials were available for construction. The plant was
finally completed on 31 December 2007 and was ready for its intended use. The
total costs of construction were RM4,200,000 and RM4,000,000 for the year
ended 30 June 2007 and 30 June 2008 respectively. It was the policy of the
company to capitalise borrowing costs wherever possible.
3 ACC6053 Advanced Accounting 1_Tutorial_Investment properties

c. The building which was classified as “held for sale” in the financial statements for
the year ended 30 June 2007 was still not sold as at 30 June 2008. This was due
to the sudden slow down of the property market. The company has continued
to actively marketed the building and reduced the asking price of the building.
The company is still committed to sell the building. The fair value less costs to
sell was RM6,750,000 at 30 June 2008 and was measured at fair value less costs
to sell of RM7,340,000 when it was initially classified as “held for sale”during the
year ended 30 June 2007.

Required:
i. Explain the accounting treatment of the transfer of owner-occupied property
to investment property. Show the relevant journal entries to record the
transfer.
ii. Calculate the total borrowing costs that can be capitalised as costs of the
plant. Determine the carrying value of the plant on 30 Jun e 2008.
iii. Discuss whether the building that was initially classified as “held for sale” can
continue to be classified as such? Determine the carrying value of the
building as at 30 June 2008.
iv. Discuss the accounting treatment of the long-term leasehold land in
accordance with FRS117 Lease and FRS 116 Property, plant and equipment.

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