CC Ltd, a company incorporated in Singapore with December 31 year-ends, acquired a retail shop on...

CC Ltd, a company incorporated in Singapore with December 31 year-ends, acquired a retail shop on 2 January 20X1 for $600,000 with the intention of renting it out. The property is leasehold with 20 years remaining on the lease. It has a zero residual value. On 1 July 20X1, CC Ltd rented out the retail shop to an unrelated company for a monthly rental of $8,000, payable at the end of each month. After 2 years, CC Ltd managed to terminate the lease with the existing tenant on 30 June 20X3. CC Ltd used the retail shop for its own operations from 1 July 20X3 onwards.

The market value of CC Ltd’s retail shop was determined as follows:

31 December 20X1 : $800,000

31 December 20X2 : $700,000

1 July 20X3 : $740,000

CC Ltd adopts the fair value model under FRS 40 Investment Property and adopts the cost model under FRS 16 Property, Plant and Equipment. CC Ltd depreciates all its assets on a straight-line basis where applicable.

Required:

Illustrate the accounting for the retail shop by preparing the journal entries (with journal narratives) to record the various events relating to CC Ltd’s retail shop from 2 January 20X1 to 31 December 20X3. Please round your answers to the nearest dollar.

Since CC Ltd adopts fair value, the gain or loss arising from the change in the fair value of the investment property must be recognised in the calculation of profit or loss for the period in which it arises.

Solutions

Expert Solution

In the Books of

CC Ltd

Journal Entries

Date	Description	Debit ($)	Credit ($)
2nd Jan, 20X1	Investment Property - Retail Shop A/c Dr. To Bank A/c (Purchased retail shop with the the intention of renting)	600,000	600,000
31st July, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Aug, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th Sep, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Oct, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th Nov, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Dec, 20X1	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Dec, 20X1	Investment Property - Retail Shop A/c Dr. To Profit on Change of Fair Value A/c (Fair Value of Retail Shop has been revised as per FRS - 40)	200,000	200,000
31st Dec, 20X1	Profit on Change of Fair Value A/c Dr. Rental Income from Retail Shop A/c Dr. To Profit & Loss A/c (Profit tranfered to Profit & Loss A/c)	200,000 48,000	248,000
31st jan, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
28th Feb, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st March, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th April, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st May, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th June, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st July, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st August, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th Sep, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Oct, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th Nov, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Dec, 20X2	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st Dec, 20X2	Loss on Change of Fair Value A/c Dr. To Investment Property - Retail Shop A/c (Fair Value of Retail Shop has been revised as per FRS - 40)	100,000	100,000
31st Dec, 20X2	Rental Income from Retail Shop A/c Dr. To Profit & Loss A/c (Profit tranfered to Profit & Loss A/c)	96,000	96,000
31st Dec, 20X2	Profit & Loss A/c Dr. To Loss on Change of Fair Value A/c (Loss tranfered to Profit & Loss A/c)	100,000	100,000
31st Jan, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
28th Feb, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st March, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th April, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
31st May, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
30th June, 20X3	Bank A/c Dr. To Rental Income from Retail Shop A/c (Rent recived for the retail shop)	8,000	8,000
1st July, 20X3	Investment Property - Retail Shop A/c Dr. To Property, Plant And Equipments - Retail Shop A/c (Retail Shop transfered to Property, Plant And Equipments as it ceases to be Investment Property as per FRS - 40)	740,000	740,000
1st July, 20X3	Investment Property - Retail Shop A/c Dr. To Profit on Change of Fair Value A/c (Fair Value of Retail Shop has been revised as per FRS - 40)	40,000	40,000
31st Dec, 20X3	Depriciation A/c Dr. To Property, Plant And Equipments - Retail Shop A/c (Charged Depriciation on Straight Line Basis as per FRS-16)	21,143	21,143
31st Dec, 20X3	Profit on Change of Fair Value A/c Dr. Rental Income from Retail Shop A/c Dr. To Profit & Loss A/c (Profit tranfered to Profit & Loss A/c)	40,000 48,000	98,000
31st Dec, 20X3	Profit & Loss A/c Dr. To Depriciation A/c (Expenditure tranfered to Profit & Loss A/c)	21,143	21,143

ekkarill92 answered 1 year ago

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