Question

Green Wellness Berhad owns several properties and has a financial year end of 31 December.Whenever possible, the company considers investment properties using the fair value model.The list of properties owned by the company are as follows:
Property X
Acquired on 1 January 2011. It had a cost of RM1 million, comprising of RM500,000 for land and RM500,000 for buildings. The buildings have a useful life of 40 years. Green Wellness Berhad uses this property as its head office.
Property Y
Acquired on 1 January 2013 for the price of RM1.5 million for its investment potential.
On 31 December 2017, it had a fair value of RM2.3 million. By 31 December 2018, its fair value had risen to RM2.7 million. This property has a useful life of 40 years.
Property Z
Acquired on 30 June 2012 for the price of RM2 million for its investment potential. The directors of Green Wellness Berhad’s company believe that the fair value of this property was RM3 million on 31 December 2017 and RM3.5 million on 31 December 2018. However, due to the specialised nature of this property, these figures cannot be corroborated. This property has a useful life of 50 years.
a) For each of the above properties:

i) Explain whether the property is an investment property in accordance with the accounting standards provided in MFRS 140 Investment Property.

ii) Record the relevant journal entries from the date of acquisition of the property (if the date is known) until 31 December 2018 in accordance with the accounting standards contained in MFRS 140 Investment Property or other relevant accounting standards. Show all computations and supporting explanations.

b) Prepare an analysis of property, plant and equipment for Green Wellness Berhad for the year ended 31 December 2018, by showing the value of each of the above properties separately.  

Answer 1

a. (i)

- As per MFRS 140'Investment property'-

-Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both.

-The following are not investment property and, therefore, are outside the scope of MFRS 140

• property held for use in the production or supply of goods or services or for administrative purposes
• property held for sale in the ordinary course of business or in the process of construction of development for such sale
• property being constructed or developed on behalf of third parties
• owner-occupied property ( Property, Plant and Equipment), including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal

Property	Basis of use	Whether Investment property under MFRS 140	Reason
X	Head Office	No	because it is used for administrative purpose. Hence it will be accounted as '"property, plant & Equipment"
Y	Investment potential	Yes	because it is used for investment purpose for earning rentals and capital appreciation.
Z	Investment potential	Yes	because it is used for investment purpose for earning rentals and capital appreciation

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(II)

Journal Entry for Property X

Property X acquired on 1 January 2011. It had a cost of RM1 million, comprising of RM500,000 for land and RM500,000 for buildings.The buildings have a useful life of 40 years.

-Land and Building to be treated as separate component and hence depreciation is to be charged only on the Building and not on the land.

- Depreciation per year on the building = RM 500000/40 Years = RM 12500.

Date	Particulars	Debit (RM)	Credit (RM)
1 January 2011	Land Dr	500000
	Building X Dr	500000
	To Bank		1000000
	(Being land and building purchased)
31 December 2011	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2012	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2013	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2014	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2015	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2016	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2017	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

31 December 2018	Depreciation On Building X Dr	12500
	To Building X		12500
	(Being depreciation charged on Building of property X)

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Journal Entry for Property Y

-Property Y acquired on 1 January 2013 for the price of RM1.5 million for its investment potential.On 31 December 2017, it had a fair value of RM2.3 million. By 31 December 2018, its fair value had risen to RM2.7 million. This property has a useful life of 40 years.

-As per MFRS 140" Investment property"-

1. if an investment property is measured under Fair Value Model, then the resulting gain / loss will be transferred to profit and loss account.

2.Investment property recorded under fair value model will not be depreciated. Means depreciation will not be charged on them.

Date	Particulars	Debit(RM)	Credit (RM)
1 January 2013	Investment property Y Dr.	1500000
	To bank		1500000
	(being investment property Y acquired)
31 December 2017	Investment Property Y Dr.	800000
	To Gain on fairvalue increase in investment property		800000
	(Being gain on increase in fair value recorded )
31 December 2017	Gain on fairvalue increase in investment property Dr	800000
	To profit & Loss Statement		800000
	(Being gain transferred to PL)

31 December 2018	Investment Property Y Dr.	400000
	To Gain on fairvalue increase in investment property		400000
	(Being gain on increase in fair value from 2.3 million to 2.7 million recorded )
31 December 2018	Gain on fairvalue increase in investment property Dr	400000
	To profit & Loss Statement		400000
	(Being gain transferred to PL)

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Journal Entry for Property Z-

-Property Z acquired on 30 June 2012 for the price of RM2 million for its investment potential. The directors of Green Wellness Berhad’s company believe that the fair value of this property was RM3 million on 31 December 2017 and RM3.5 million on 31 December 2018. However, due to the specialised nature of this property, these figures cannot be corroborated. This property has a useful life of 50 years.

- As per MFRS 140 " Investment Property'-

- If the entitydetermines that the Fair value of an investment property is not readily determinable or there is no proper support for the calculation then such investment property shall be accounted as "Property, plant & Equipment" under cost menthod.

- Value of property = RM 2000000

Life = 50 Years

Depreciation per Year = RM 2000000/ 50 Year = RM 40000

-Depreciation for 31 Dec 2012 = for 6 months = RM 40000*6/12 month = RM 20000

Date	Particulars	Debit (RM)	Credit (RM)
30 June 2012	Investment Property Z Dr	2000000
	To Bank		2000000
	(Being Investment property purchased)
31 December 2012	Depreciation On Investment property Z Dr	20000
	To Investment Property z		20000
	(Being depreciation charged on investment property Z for 6 months)

31 December 2013	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

31 December 2014	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

31 December 2015	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

31 December 2016	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

31 December 2017	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

31 December 2018	Depreciation On Investment property Z Dr	40000
	To Investment Property z		40000
	(Being depreciation charged on investment property Z )

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b.

Analysis of the Property for the year ended 31 December 2018

Particulars	Property X	Property Y	Property Z
Investment property	No	Yes	yes
Date of purchase	1st January 2011	1st January 2013	30 June 2012
Value	Land = RM 500000 Building = RM 500000	RM 1500000	RM 2000000
Accumulated depreciation upto 31 Dec 2018	Land = Nil Building=8 year * RM 12500= RM 100000	No depreciation to be charged on investment property valued under Fair value model	RM 260000
Value As on 31 December 2018	Land = RM 500000 Building= RM 500000-100000= RM 400000	RM 2700000 (Total Fair Value Gain recorded = RM 1200000)	=RM 2000000-RM 260000 =RM 1740000