Question

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Question:-
CC Ltd, a company incorporated in Singapore with Dec 31 year ends, acquired a retail shop on 2 Jan 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 Jul 20x1, CC Ltd rented out the retails shop to an unrelated company for a monthly rental of $8,000, payable at the end of each month. After 2 yrs, CC Ltd managed to terminate the lease with the existing tenant on 30 Jun 20x3. CC Ltd used the retail shop for its own operations from 1 Jul 20x3 onwards.
The market value of CC Ltd's retail shop was determined as follows:-
31 Dec 20x1: $800,000
31 Dec 20x2: $700,000
1 Jul 20x3 : $740,000

CC Ltd adopts the fair 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 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 Jan 20x1 to 31 Dec 20x3. Please round your answer to the nearest dollar.

Answer 1

Investment property shall be initially measured at cost, including the transaction cost. (As per IAS 40)
The cost of investment property includes:
Its purchase price and any directly attributable expenditure
Under fair value model, an investment property is carried at fair value at the reporting date.
The fair value is determined in line with the standard IFRS 13 Fair Value Measurement.
A gain or loss from re-measurement to fair value shall be recognized in profit or loss.
Fair value model
Revaluation model
Fair value model
Fair Value model use only when property used for the purpose of either to earn rentals or for capital appreciation (otherwise, you cannot apply IAS 40 and fair value model).
31 Dec 20x1
Investment property	Debit	$200,000		Assets
Fair value gain on investment property	Credit	$200,000		Profit or loss
(Being fair value gain has been recoded).
##   In Fair value model ni depreciation to be charged
31 Jul 20x1
Rental income
Cash/ Bank or Party	Debit	$8,000
Rental income	Credit	$8,000
(being Rental income recoded)
The above entry to be made at the end of every month at same amount till 30 June 20x3. Therefore I am not passing repetative enty.
31 Dec 20x2
Fair value gain on investment property	Debit	$100,000		Profit or loss
Investment property	Credit	$100,000		Assets
(Being fair value loss has been recoded).
1 Jul 20x3
Investment property	Debit	$40,000		Assets
Fair value gain on investment property	Credit	$40,000		Profit or loss
(Being fair value gain has been recoded).
Revaluation model
31 Dec 20x1
Depreciation	Debit	$30,000		Profit or loss		$600000/20
Accumulated depreciation	Credit	$30,000
(Being Depreciation entry made)
Revaluation as of 31 December 20X1:
PPE	Debit	$170,000		Fair Value(-) Carrying amount
Equity – revaluation surplus	Credit	$170,000		Carrying amount= $600000-depreciation 30000
31 Dec 20x2
Depreciation	Debit	30000
Accumulated depreciation	Credit	30000
(Being assets revalue)
Revaluation as of 31 December 20X2
Equity – revaluation surplus	Debit	$40,000
PPE	Credit	$40,000
(Being assets revalue)