Question
HK Holdings, a property development company that engaged in the business of developing and selling properties, purchased property with estimated useful life of 33 years
HK Holdings, a property development company that engaged in the business of developing and selling properties, purchased property with estimated useful life of 33 years on 1.1.20X2 at cost of $66 million. The company then rented the property to an outside party at market rental. The following revaluations were made in subsequent years:
$m
Valuation at 31.12.20X2 70
Valuation at 31.12.20X3 60
Valuation at 31.12.20X4 90
On 30 June 20X5, the company has redeveloped this property and placed it together with a portfolio of other properties on market for sale. At that time, the market value of the property was $120m.
Required:
a) Prepare journal entries for the depreciation or revaluation of property for the years ended 31 December 20X2 to 20X4 under:
(i) the cost model
(ii) the fair value model
b) Prepare the extracts of financial statements for the years ended 31 December 20X2 to 20X4 in (a) above.
c) Prepare journal entries for the transfer of usage on 30 June 20X5 under:
(i) the cost model
(ii) the fair value model
d) Prepare the extracts of financial statements for 6 months ended 30 June 20X5 in (c) above. e) Assume that the company sold the property on 1 January 20X5 for $110m, prepare journal entries on disposal of property under:
(i) the cost model
(ii) the fair value model
Hints:
a) (i) Cost model $ $
20X2
Dr Cr
20X3
Dr Cr
20X4
Dr Cr
(ii) Fair value model
20X2
Dr Cr
20X3
Dr Cr
20X4
Dr Cr
b) Statement of Comprehensive Income (extract) for the year ended 31 December
(i)Cost model $m (ii)Fair value model $m
20X2
Depreciation P/L - Gain on changes in fair value
20X3
Depreciation P/L - Loss on changes in fair value
20X4
Depreciation P/L - Gain on changes in fair value
Statement of Financial Position (extract) as at 31 December
20X2
Investment property
20X3
Investment property
20X4
Investment property
c) (i) Cost model (I.P. -> Inventory) $m $m
Dr
Dr
Cr Investment property
(ii) Fair value model (I.P. -> Inventory)
Dr
Cr
Cr Investment property
d) Statement of Comprehensive Income (extract) for 6 months ended 30 June 20X5
(I.P. -> Inventory)
Cost model Fair value model
$m $m
Depreciation
P/L - Gain on changes in fair value
Statement of Financial Position (extract) at 30 June 20X5
Inventories
e)
(i) Cost model (Asset disposal on 1/1/20X5)
Dr
Dr
Cr Investment property
Cr
(ii) Fair value model (Assets disposal on 1/1/20X5)
Dr
Cr Investment property
Cr
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started