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Class 6: Fair value FV now pervades financial reporting in the most important accounting standards (GAAP, IFRS). Are there any differences that one encounters when moving from the US to the international arena? Case: Land Securities Group (A) Choosing Cost or Fair Value on Adoption of IFRS Discussion questions: 1. Assume there are three separate real estate companies: US Realty (which applies the cost model), UK Realty (which applies the revaluation model), and International Realty (which applies the fair value model). Assume that on 31 Dec 2003, each company pays 1,000 cash to obtain investment property comprising land with negligible value and an office building worth 1,000. The building has a ten year useful life, has no residual value, and is expected to provide a constant stream of economic benefits over time. What is the accounting entry for each company for the following four scenarios? a. on 31 Dec 2003, at acquisition b. on 31 Dec 2004, assuming the investment property fair value is 1,300 c. on 31 Dec 2005, assuming the investment property fair value is 1,100 d. on 31 Dec 2006, assuming the investment property fair value is 500 Using the above illustrations, as well as Exhibit 11, as references, what financial analysis challenges arise as a result of these differing accounting models? 2. Which model (cost, revaluation or fair value) provides the most relevant information? Which model provides the most reliable information? 3. How does each model affect Land Securities' balance sheet? Income statement? Can the firm assess the effect of adopting the fair value model on previous years' key performance metrics such as \"profit on ordinary activities\"? 4. Which model, cost or fair value, would you recommend Land Securities adopt? Why? 5. The FASB and IASB are actively seeking to eliminate differences between US and international accounting standards. However, investment properties are reported under the cost model in the US, while IFRS allows either the cost or fair value method. Should the FASB also allow the fair value model