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    Topic 7 - Question 2 Memo-Investment Property-Class Practice

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    Topic 7 - Question 2 Memo-Investment Property-Class Practice

    Uploaded by

    mukharivukheta
    10 views3 pages
    Financial accounting questions

    Original Title

    Topic 7_Question 2 Memo-Investment Property-Class Practice

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    Financial accounting questions

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views3 pages

    Topic 7 - Question 2 Memo-Investment Property-Class Practice

    Uploaded by

    mukharivukheta
    Financial accounting questions

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Page 1 of 3

    Financial Accounting 2B (MFAC62212) /


    Accounting 2B (MACC62216) - 2024
    Investment Property (IAS40) - Class Practice Question 2

    QUESTION:

    Power Ltd is a multi-million rand enterprise. The following information relates to the
    company for the year ending 29 February 2020:
    1. The following Property, plant and equipment were included in the Statement of
    financial position on 28 February 2019:

    PPE Cost Accumulated Carrying amount


    R Depreciation
    Land 1 950 000 ---- 1 950 000
    Manufacturing 4 950 000 (792 000) 4 158 000
    buildings
    Office buildings 4 000 000 (800 000) 3 200 000

    2. The following depreciation rates and methods are applicable:

    Asset category Depreciation rate Depreciation method

    i. Property, plant and equipment (PPE):


    Land N/A N/A
    Manufacturing building 25 years Straight-line
    Office buildings 20 years Straight-line

    ii. Investment property:


    Office buildings (Old & New) 20 years Straight-line

    Investment property
    3. The following Investment Property was included in the Statement of
    financial position on 28 February 2019:
    Acquisition date Cost Fare value
    Office building (Old) 1 March 2014 R4 546 000 R6 274 000

    4. New office building with a cost price of R3 569 340 (including VAT) was
    acquired on 1 October 2019 and was immediately available for use as intended
    by management. The new office building did qualify for VAT purposes in terms
    of the VAT Act. 100% of the new office building is rented out.
    Page 2 of 3

    5. The fair value of the old office building and new office building, representing
    100% of the value, on 29 February 2020 amounted to R6 841 000 and R3 600
    650 respectively.

    6. Power Ltd received rent R318 402 (including VAT) during the year ended
    29 February 2020 for the old office building and R18 500 per month for the new
    office building from 1 November 2019, under operating leases. The total repairs
    and maintenance expense towards the investment properties amounted to
    R126 558.

    7. It is the accounting policy of the company to account for Investment Property


    and Property, plant and equipment according to the cost model.

    8. The estimates of depreciation method, useful life and residual values are
    reviewed annually and have remained unchanged for all assets, except
    otherwise stated.

    General information
    • Power Limited is a registered VAT vendor. However, all amounts are
    excluding VAT, unless otherwise stated.
    • Assume a VAT rate of 15% and a normal tax rate of 28%.

    REQUIRED:
    Disclose the profit before tax and investment property NOTES to the annual financial
    statements of Power Limited for the year ended 29 February 2020 in accordance with
    IAS 40 (Investment Property).
    Page 3 of 3

    ANSWER- QUESTION 2
    Power Limited
    Notes to the financial statements for the year ended 29 February 2020

    Profit before taxation note


    Profit before taxation is calculated after taking into account the following:
    Income
    Operating lease income received on investment property 350 871
    [318 402 X 100/115] + [18 500 X 4 months]
    Expenses

    Depreciation – investment property 291 962


    Operating expenses on investment property 126 558

    Investment property note


    Office buildings
    (old & new)

    Carrying amount at beginning of the year 3 409 500


    Cost (old build) 4 546 000
    Accumulated depreciation (4 546 000 / 20 X 5) (1 136 500)
    Additions – acquisitions (new build) (Cal: a) 3 103 774#
    Depreciation (Cal: b) (291 962) *
    Carrying amount at the end of the year 6 221 312
    Cost (4 546 000 + 3 103 774 #) 7 649 774
    Accumulated depreciation (1 136 500 + 291 962*) (1 428 462)

    Calculations:
    (a) New office building (Investment property)

    Cost R3 569 340 X 100/115 = 3 103 774 = Investment property


    Fair value at the end of year 3 600 650

    (b) Depreciation (cost model)– Investment property

    Office buildings – old (4 546 000 / 20) 227 300


    Office buildings – new (3 103774 / 20 X 5/12) 64 662
    Total 291 962 *

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