Question

In February 2020, Muskoka Corp. purchased a golf course in southern Ontario for $7.5 million cash. This amount included legal fees of $18,000 and property taxes of $40,000 (of that amount, $30,000 were in arrears). Based on appraisals, the property's year-end fair values were $8.2 million at the end of 2020, and $8 million at the end of 2021.

This golf course qualifies as an investment property. In addition, Muskoka Corp. applies the fair value model to all its investment property.

Required

1. Prepare all journal entries for 2020 and 2021.

Answer 1

Note- as per IAS 40 " Investment Property"-

1.An investment property will initially be recognised at COST.

2.Cost means initial purchase price and directly attributed cost like legal expenses,property tax & non refundable taxes paid.

3.IAS 40 gives two options for the subsequesnt measurement of the Investment property-

   a. Cost method

b. Fair value method.

4. Under fair value method the investment property will be valued at fair value on the reporting date

5. Any increase or decrease in the fair value of investment property will be reported through Profit or loss statement.

6. Investment property accounted under fair value will not be DEPRECIATED.

Date	particular	amount($ million)
1 Feb 2020	Investment property(golf course) Dr	7.5
	To bank	7.5
	(being golf course purchased for $7.5 million including purchase price and direct costs)
31 Dec 2020	Investment property (golf course)    Dr.	0.7
	To Fair value gain on investment property(P/L)	0.7
	(Being investment property of $7.5 million revalued to $8.2 million)
31 Dec 2021	Fair value loss on investment property (P/L)    Dr.	0.2
	To Investment property (golf course)	0.2
	(Being investment property of $8.2 million is revalued to $ 8 million)