Lauren Ltd owns some land at Brunswick, inner north suburb of Melbourne, Australia, approximately 5 km from the Metro Tunnel rail construction site which was purchased at a cost of $ 6 ,000,000 on 30 June 2014 After carrying the land at cost, on 30 June 2018, Lauren Ltd decides to use revaluation model, as the area has strongly increased in market value due to change in land use, planning and subdivision rules, resulting in the lands fair value increasing to $6,800,000 After one year, on 30 June 2019, due to amendments in the planning and subdivision rules due to environmental concerns, the commercial attractiveness of the area has dropped, resulting in the land fair value dropping to $ 5 ,800,000 REQUIRED Determine the value of land to be recorded in the accounts under the revaluation model at 30 June 2018 and 30 June 2019 (1 mark) ANSWER Provide the journal entry to account for the revaluation of the land on 30 June 2018 Ignore any tax implications (1 mark) ANSWER Provide the journal entry to account for the revaluation of the land on 30 June 2019 Ignore any tax implications (1 5 marks) ANSWER Assume that in 2018, the management of Lauren Ltd was trying to obtain a bank loan from ANZ Bank As part of ANZ Banks due diligence, they review the companys solvency or ability to repay debt as measured by the debt asset ratio Explain the implications (if any) of the 2018 land revaluation on this ratio and on the prospects of Lauren Ltd obtaining the loan (3 marks)

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Posted on Sep 06, 2024

Lauren Ltd owns some land at Brunswick, inner-north suburb of Melbourne, Australia, approximately 5 km from the Metro Tunnel rail construction site which was purchased

Lauren Ltd owns some land at Brunswick, inner-north suburb of Melbourne, Australia, approximately 5 km from the Metro Tunnel rail construction site which was purchased at a cost of $6,000,000 on 30 June 2014. After carrying the land at cost, on 30 June 2018, Lauren Ltd decides to use revaluation model, as the area has strongly increased in market value due to change in land use, planning and subdivision rules, resulting in the lands fair value increasing to $6,800,000. After one year, on 30 June 2019, due to amendments in the planning and subdivision rules due to environmental concerns, the commercial attractiveness of the area has dropped, resulting in the land fair value dropping to $5,800,000.

REQUIRED:

Determine the value of land to be recorded in the accounts under the revaluation model at 30 June 2018 and 30 June 2019 (1 mark).

ANSWER

Provide the journal entry to account for the revaluation of the land on 30 June 2018. Ignore any tax implications. (1 mark)

ANSWER

Provide the journal entry to account for the revaluation of the land on 30 June 2019. Ignore any tax implications (1.5 marks)

ANSWER

Assume that in 2018, the management of Lauren Ltd was trying to obtain a bank loan from ANZ Bank. As part of ANZ Banks due diligence, they review the companys solvency or ability to repay debt as measured by the debt / asset ratio. Explain the implications (if any) of the 2018 land revaluation on this ratio and on the prospects of Lauren Ltd obtaining the loan. (3 marks)