Question

Part a
Sekwanele Ltd is a manufacturing company in Windhoek, Namibia, producing and selling steel
beams. On 1 January 2019 the company acquired a property with the following details:
N$
Purchase price
Land: stand number 234 Mandume Ndemufayo 900 000
Office building thereon 2 200 000
Repairs and maintenance incurred for the year 70 000
Approximately 5% of the floor space is used as the administrative head office of the entity while the
remainder of the building is leased out in terms of a non-cancellable operating lease to a financial
institution at a monthly rental of N$40 000 for a period of 10 years commencing 1 January 2019. The
property (land and office building) can only be sold as one complete unit.
The entity values investment property using the fair value model. On 31 December 2019, the end of the
reporting period, the above property was valued by an independent valuer who holds a recognized and
relevant professional qualificationand has recent experience in the location and category of the property
being valued. The valuer determined the fair value of the property based on observable prices for similar
property, adjusted for the condition and location of the asset. The fair value was determined as follows:
Land N$1 100 000
Building N$3 100 000
Profit before tax before taking all of the above information into account, amounted to N$3 000
000 for the reporting period ended 31 December 2019.
Ignore tax implications.

Required:
3.2 Journalise all the events and transactions (including cash transactions) to recognize the
property in the accounting records of A Ltd for the reporting period 31 December 2019.

3.3 Disclose the information above in the following notes to the financial statements of A
Ltd as at 31 December 2019 according to IFRSs
1. Accounting policy
2. Profit before tax
3. Investment property

Answer 1

 

3.2. Journal Entries :-

Date	Particulars	Debit Amount	Credit Amount
1/01/2019	Land and Office Building A/c	31,00,000
	To Cash A/c		31,00,000
	(Being Land and office building purchased )
	Repairs & Maintainance A/c	70,000
	To Cash A/c		70,000
	(Being repairs done )
	Profit & Loss A/c	70,000
	To Repairs & Maintainance A/c		70,000
	(Being repairs tranferred to p&l a/c)
31/01/2019	Cash A/c	40,000
	To Rental Income A/c *		40,000
	(Being rental income received)
31/01/2019	Rental Income A/c	40,000
	To Profit & Loss A/c		40,000
	(Being amount tranferred to p&l a/c)
31/12/2019	Land and Office Building A/c	11,00,000**
	To Profit & Loss A/c		11,00,000
	(Being investment property revalued)

Working Note:

*

This entry should be done for each month from January to December leading to total rental income of $ 480000 (12 * $ 40000).

Similarly, transfer entry of rental income to p & l should also be done for each month.

**

Revalued Amount:

Land (11,00,000 - 9,00,000)    = 2,00,000

Building (31,00,000 - 24,00,000) = 9,00,000

Total = 11,00,000

3.3. Accounting Policy:-

Accounting for investment is done as per IAS 40. Fair value model has been adopted for subsequent recognition.

Profit Before Tax:

The profit before tax for the year ended as on 31/12/19 stands at N $ 30,00,000.

3. Investment Property:

(a) Investment property is valued as per fair value model.

   (b) The valuation of investment property has been done by qualified independent valuer at year end.

(c) The amount recognised in profit & loss for

i) Rental income from Investment property is $ 4,80,000

ii) Direct operating expense (repair & maintainance) is $ 70,000

(d) Reconcilation of investment property

Carrying amount as on 1/01/19 31,00,000

Add: Fair value adjustment 11,00,000

  Carrying amount as on 31/01/19 42,00,000