Case Questions: 1. In order to understand how each of the three valuation methods work, we begin with a simple example. Assume there are three separate real estate companies: U.S. Realty (which applies the cost model under U.S. GAAP); U.K. Realty (which applies the revaluation model under U.K. GAAP); and International Realty (which applies the fair value method under IFRS). Assume that on December 31, 2003, each company independently pays the equivalent of $1 million to acquire investment property comprising land with negligible value and an office building worth $1 million. The building has a 10-year useful life, no residual value, and is expected to provide a constant stream of rental income over time. Given the accounting model that each company has chosen to follow, how would each company account for the following? a. Acquisition of the land and building on December 31, 2003. b. December 31, 2004: Assume the investment property now has a fair value of $1.3 million. c. December 31, 2005: Assume the investment property now has a fair value of $1.1 million. d. December 31, 2006: Assume the investment property still has a fair value of $1.1 million 2. How does the model each firm uses affect its balance sheet at the end of each year? How does each model affect pre-tax earnings each year? 3. Using your answers to question 1 and 2 above, as well as the commentary in case Exhibit 10 as references, what challenges arise for investors trying to compare companies using differing accounting models? 4. In your view, which model (cost, revaluation, fair value) provides the most relevant information? Which model provides the most reliable information? Taking an investor perspective, which model would you recommend? Why? 5. Taking management's perspective, which model would you recommend that Land Securities adopt for IFRS? Why? Case Questions: 1. In order to understand how each of the three valuation methods work, we begin with a simple example. Assume there are three separate real estate companies: U.S. Realty (which applies the cost model under U.S. GAAP); U.K. Realty (which applies the revaluation model under U.K. GAAP); and International Realty (which applies the fair value method under IFRS). Assume that on December 31, 2003, each company independently pays the equivalent of $1 million to acquire investment property comprising land with negligible value and an office building worth $1 million. The building has a 10-year useful life, no residual value, and is expected to provide a constant stream of rental income over time. Given the accounting model that each company has chosen to follow, how would each company account for the following? a. Acquisition of the land and building on December 31, 2003. b. December 31, 2004: Assume the investment property now has a fair value of $1.3 million. c. December 31, 2005: Assume the investment property now has a fair value of $1.1 million. d. December 31, 2006: Assume the investment property still has a fair value of $1.1 million 2. How does the model each firm uses affect its balance sheet at the end of each year? How does each model affect pre-tax earnings each year? 3. Using your answers to question 1 and 2 above, as well as the commentary in case Exhibit 10 as references, what challenges arise for investors trying to compare companies using differing accounting models? 4. In your view, which model (cost, revaluation, fair value) provides the most relevant information? Which model provides the most reliable information? Taking an investor perspective, which model would you recommend? Why? 5. Taking management's perspective, which model would you recommend that Land Securities adopt for IFRS? Why