Investment Property (IAS 40)

4 (a) Accounting policy of Kanka Ltd. revealed the following:

The company adopts revaluation model of IAS 16: Property, Plant & Equipment and the fair
value model of IAS 40: Investment Property. Kanka Ltd. chooses to recognise any fair value
gains or losses arising on its equity investments in ‘other comprehensive income’ as permitted by
IFRS 9: Financial Instruments. The following transactions relate to Kanka Ltd. for the year
ended 31 March 2018.
i) Kanka Ltd owns a piece of property it purchased on 1 April 2015 for Tk.3.7 million. The land
component of the property was estimated to be Tk.1.2 million at the date of purchase. The useful
economic life of the building on this land was estimated to be 25 years on 1 April 2015. The
property was used as the corporate head office for two years from that date. On 1 April 2017, the
company moved its head office to another building and leased the entire property for five years
to an unrelated tenant on an arm’s length basis in order to benefit from the rental income and
future capital appreciation. The fair value of the property on 1 April 2017 was Tk.4.1 million
(land component Tk.1.9 million), and on 31 March 2018, Tk.4.8 million (land component Tk.2.1
million). The estimated useful economic life remained unchanged throughout the period. Land
and buildings are considered to be two separate assets by the directors of Kanka Ltd. as per IAS
1. Nov-Dec 2018_Marks 4
4 (a) May-June 18
1.(d)
An entity with a 31 December year-end purchased an office building with a useful life of 50
years for Tk 5.5mn on 1 January 20x1. The amount attributable to the land was negligible. The
entity used the building as its head office for five years until 31 December 20x5 when the entity
moved its head office to larger premises. The building was reclassified as an investment property
and leased out under a five year lease.
Owing to a change in circumstances the entity took possession of the building five years later on
31 December 20Y0, to use it as its head office once more. At that date the remaining useful life
of the building was confirmed as 40 years. The fair value of the head office was at 31 December
20X5 Tk 6mn and at 31 December 20Y0 Tk 7.5mn
Requirements:
How should the changes of use be reflected in the financial statements on the assumption that:
(i) The entity uses the cost model for investment properties
(ii) The entity uses the fair value for investment properties. (May-June 2017) 10

3.(b) (iv)
ABC Ltd. is a computer manufacturer. It adopted a 30 June accounting year-end.
On 1 July 2013, the company uses its excess cash to buy a factory for investment purposes. The
factory is rented out to another manufacturer. The factory costs Tk.50,000,000, and is expected
to have a useful life of 50 years with no salvage value. The market value of the building is
Tk.55,000,000 as at 30 June 2014 and Tk.48,000,000 as at 30 June, 2015. The company has a
policy of applying the straight line method of depreciation in the case of fixed assets, as may be
applicable.
Required:
Pass journal entries to show how the factory should be recognized and measured under the
relevant BAS? (Nov-Dec 2015) 6

2.d. (i) “All investment properties should be measured at fair value”. What is fair value of an
investment property and how it is measured? (May-June 2013) 4
(ii) Discuss the following treatment under the changed circumstances: (May-June 2013)
3