In: Accounting
Facts: A South African public company constructed a warehouse during 20X1. Costs involved in building the warehouse (or incurred after construction) included, among others: Payment of wages and benefits to construction workers, who were already employed by the company ($3 million). Exterior paint for the building ($80,000). A test production run, in which the plant tested its ability to produce its products ($100,000). Payment of wages to construction workers for service issues arising after the plant was placed in service ($200,000). In 20X2, an appraisal by the company's local tax assessor indicated that the building's value had increased by $5 million. Required: Determine whether the company is subject to the requirements of IFRS (based on the home country). Cite your source for this determination. Locate the relevant guidance, then determine which of the above-listed costs may be included in the initial measurement (i.e., capitalized value) of the plant when the plant is first recognized in 20X1, citing your sources. Certain costs may be addressed directly by the guidance; others may require judgment in applying principles from the guidance. Determine whether the property's value should be adjusted in year 2 (20X2). Using an IFRS/ U.S. GAAP comparison guide, state how your response to question 3 would differ if this company had been subject to U.S. GAAP. Cite the source for your response.
ANSWERS:
A) Yes, the company is subject to requirements of IFRS because a South African domestic public company has to adhere IFRS requirement/compliance.
B) CAPITALIZED VALUE FOR 2011
C) In 20X2, there is an appraisal by the company's local tax assessor which indicated that the building's value had increased by $5 million. Since the company is a domestic public company which is and has to adhere to the requirements of IFRS it has to make upward valuation of Capitalized Value of plant. So Company has to adjust (upward/increase value) of Plant by $ 5 million.
D) If South African Domestic Company has been subject to US GAAP then an appraisal by the company's local tax assessor indicating that the building's value had increased by $5 million has no relevance since as per requirements of US GAAP a property (here plant) will be recorded at historical cost only in Books of accounts and no adjustments in form of upward/downward valuation is required to be considered.