As Accountant, you have prepared the financial statements of Middlesbrough Plc for the year ended 31 December 2021. While going through these accounts a junior accountant raised a query concerning Property, Plant & Equipment. He stated:

1. I notice that we measure all of our freehold properties using a fair value model but that we measure our plant and equipment using a cost model. I further notice that both of these asset types are shown in the ‘property, plant and equipment’ figure which is a single component of non-current assets in the consolidated statement of financial position. It makes no sense to me that assets which are shown as property, plant and equipment are measured inconsistently. If it’s OK to measure different parts of property, plant and equipment using two different measurement models, why not use the fair value model for the more readily accessible properties and use the cost model for the properties in remote locations to save on time and cost?

2. On 1 January 2019, Middlesbrough Plc purchased a building for $250,000. On that date the building was assessed to have a useful economic life of 50 years with no residual value. On 31 December 2019 the building was revalued to $350,000. On 1 January 2021 it was sold for $370,000. The financial statements of Middlesbrough Plc ended 31 December 2021. Middlesbrough Plc does not make annual transfers from the revaluation surplus. The junior accountant was very confused about how much profit the company has made on this disposal and about the correct accounting treatment thereof. Moreover, the junior accountant could also not make up his mind about the treatment of the revaluation surplus once the asset has been sold. He was unsure about whether it must be included in other comprehensive income or be released into retained earnings on disposal.

REQUIRED

(a) In line with the requirements of IAS 16 – Property, plant & equipment – elaborate on the different valuation methods allowed by the standard and give your advice that would answer to the query of the junior accountant on the correct valuation of property, plant & equipment. [10 marks]

(b) How this building will affect the financial statements of Middlesbrough Plc for the year ended 31 December 2021 – Provide justification to your answer.