Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

HP Properties is an investment company that invests in properties, amongst other things. Details of some of the company's properties are as follows: Beach Mall

HP Properties is an investment company that invests in properties, amongst other things.


Details of some of the company's properties are as follows:


Beach Mall Property

HP Properties Limited acquired this property on 1 June 2019 for R40 000 000, and the useful life of the property was estimated as 50 years. The property consists of several shops, and all the shops are rented out to various businesses. HP Properties Limited does not occupy any part of the property.

The following relates to the property:

Date                                         Market Value

31 December 2019                   R42 500 000

31 December 2020                   R42 250 000

31 December 2021                   R43 000 000


HP Office Property

The HP Office Property is a small property purchased by HP Properties Limited on 1 January 2020 for R3 500 000, of which R500 000 is related to the land. The useful life of the building was estimated at 20 years and the residual value at R1 200 000. HP Properties Limited uses the property as office space for their own operations.

The following relates to the property:

Date                                         Market Value (Land)                          Net replacement cost (Building)

31 December 2020                  R525 000                                            R2 900 000

31 December 2021                  R550 000                                            R3 100 000

Additional information:

* HP Properties Limited accounts for investment properties using the fair value model.

* HP Properties Limited accounts for all other properties using the revaluation model.

* Revaluations are done at the end of every second year, and all accumulated depreciation is eliminated on revaluation.

* Transfers from the revaluation surplus are made only once the related asset is disposed of.

* All depreciation is accounted for using the straight line basis.

* Assume that all useful lives and residual values are reviewed annually and remained unchanged.

* Ignore any tax implications.


REQUIRED:

1 Discuss how HP Properties Limited should classify the above mentioned properties. No calculations are required.

2. Prepare the journal entries required in the records of HP Properties Limited for the financial year ended 31 December 2021 to account for the above mentioned properties . Show all workings.

3. Prepare the Statement of Profit or Loss and Other Comprehensive Income of HP Properties Limited for the year ending 31 December 2021. Comparatives are required. Show all workings.

 



Step by Step Solution

3.42 Rating (152 Votes )

There are 3 Steps involved in it

Step: 1

1 The HP Office Property should be classified as an investment property using the fair value model T... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Volume 2

Authors: James Reeve, Jonathan Duchac, Sheila Elworthy, Carl S. Warren

2nd Canadian edition

176501452, 978-0176501457, 978-0176509743

More Books

Students also viewed these Accounting questions

Question

a. Where is the person employed?

Answered: 1 week ago