On March 1, 2020, Jessi Corp. acquired a 10-unit residential complex for $1,275,000, paid in cash. An independent appraiser determined that 75% of the total purchase price should be allocated to buildings, with the remainder allocated to land. On the date of acquisition, the building’s estimated useful life was 25 years, with estimated residual value of $325,000. Jessi estimates that straight-line depreciation would best reflect the pattern of benefits it will receive from the building. Fair value of the complex, as assessed by an independent appraiser on each date, is as follows:

Date .......................................... Fair Value
December 31, 2020 ............... $1,322,000
December 31, 2021 ............... $1,255,000
December 31, 2022 ............... $1,223,000

The complex qualifies as an investment property under IAS 40 Investment Property. Jessi has a December 31 year end.

Instructions

a. Prepare the journal entries required for 2020, 2021, and 2022, assuming that Jessi applies the fair value model to all of its investment property.

b. Prepare the journal entries required for 2020, 2021, and 2022, assuming that Jessi applies the cost model to all of its investment property.

c. Comment on the effects on the 2020 statement of comprehensive income with respect to parts (a) and (b).

d. Comment on the effects on the December 31, 2020 statement of financial position with respect to parts (a) and (b).

e. Digging Deeper From the perspective of an investor in Jessi, discuss the financial statement effects of using the fair value model to determine the property’s carrying amount.