Question

Journal entries and financial statement extracts

An office building sub-let to a subsidiary of Suria Berhad. At 1st January 2018, it had a fair value of RM1.5 million and had risen to RM1.65 million at 31st December 2018.

Q1/Fair value change journal entry and the financial statement extract

Answer 1

As per IAS 40, 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.

And IAS 40 permits entities to choose between: [IAS 40.30]

• a fair value model, and
• a cost model.

Assuming the Office building of Suria Berhad qualifies as Investment Property as per IAS 40 and the entity elects to choose fair value model. Accordingly the accounting entry will be :-

Investment Property (Office Building) account Debited RM 0.15 million

To Other Income RM 0.15 million

Extract of Balance Sheet
in Millions of RM
	Note	31 December 2018	31 December 2017
Assets
Investment Property		1.65	1.5

Extract of Notes to the Financial statements
Other Income
in Millions of RM
	Note	31 December 2018	31 December 2017
Increase in fair value of investment property		0.15

Extract of Notes to the Financial statements
Investment Property
in Millions of RM
	Note	31 December 2018	31 December 2017
Balance as at 1st January 2018		1.5
Acquisitions
Change in fair value		0.15
Balance as at 31st December 2018		1.65

Investment property comprises of office building....

Change in fair value are recognised as gains in profit or loss and included in other income and all gains are unrealised.

Measurement of fair values

1. Fair value hierarchy

2. Valuation technique and significant unobservable inputs