IAS 40 permits entities to choose between fair value model and cost model for the subsequent measurement of the investment properties. Investment property is accounted for in accordance with the cost model as set out in IAS 16 Property, Plant and Equipment cost less accumulated depreciation and less accumulated impairment losses, while the fair value of the asset should reflect the actual market state and circumstances as of the balance sheet date. It is generally recognized in practice that non-current assets should not be carried in a statement of financial position at values that are greater than what is worth. In the past, there has seen little guidance in this area with the result that impairment losses were not recognized on a consistent or timely basis or were not recognized at all. IAS 36, Impairment of Assets deals with this topic. On 1 January 2016, Pacman Bhd bought a single substantial asset at the cost of RM9.5 million. It had a useful life of 38 years with no residual value. The value in use is RM3.5 million at 31 December 2020. If the machine is sold now, it would realise RM5 million as net selling price.

a. Propose recommendation to Pacman Bhd for the accounting treatment of the asset in the financial statement for the year ended 31 December 2020, with the relevant accounting standards. 200+ words

b. Critically evaluate the issues in determining the application of IAS 40. 150 words or more