Q1

XYZ, a manufacturing company, purchases a property for Ghs1m on 1January 2016 for its investment potential. The land element of the cost is believed to be Ghs 400,000 and the buildings element is expected to have a useful life of 50 years. At 31 December 2016, local property indices suggest that the fair value of the property has risen to Ghs1.1m.

Requirement

Explain how the property would be presented in the financial statements as at 31 December 2016 if XYZ adopts the:

(i) Cost model; and

(ii) Fair value model.

Q2

On 1 January 2017, Addo Limited acquired an investment property for GHC 11 million. The purchase agreement provided for settlement in full on 31 December 2017 (an appropriate discount factor is 10%). GHC 1 million transfer duty and GHC 20 000 legal fees were incurred and paid during January 2017 in respect of the acquisition of this property. Rates for the year ended 31 December 2017 of GHC100 000, were paid on 30 November 2017.

All amounts given are exclusive of value added tax.

During 2017, Addo Limited constructed an investment property, expenditure on which is detailed

below:

Labour: GHC 2 million (GHC 200,000 of which was incurred due to restore faulty work pe

rformed by scab labourers whilst the companys employees were on strike and a further GHC 100,000 was in respect of unproductive time whilst waiting for the foundations to dry);

Materials: GHC 8 million (GHC1,000,000 of which was incurred to restore faulty work

performed by scab labourers whilst the companys employees were on strike and an estimated further GHC 500,000 in normal wastage).

Other resources: GHC 2 000 000.

Addo Limited completed the self-constructed building on 30 November 2017 and made an operating loss on this investment property of GHC 500,000 (due to low initial occupancies) for the month of December 2017. It is anticipated that this investment property will reach break

-even occupancy during August 2018, and the total budgeted operating loss to that date is estimated to be GHC 2 million.

Required:

Calculate the cost of each of the investment properties to be recognised by Addo Limited upon initial recognition of the investment properties.

Q3

The accounting treatment of investment properties is prescribed by IAS 40 Investment Property.

Required:

(i) Define investment property under IAS 40 and explain why its accounting treatment is different from that of owner-occupied property;

(ii) Explain how the treatment of an investment property carried under the fair value model differs from an owner-occupied property carried under the revaluation model.

PROVISIONS

Q1

The following information relates to a company which prepares financial statements to 31^st December each year:

(a) On 1^st January 2017, the company acquired new plant costing Ghs10million. This plant will require a complete overhaul after five years of use, at an estimated cost of Ghs1million. Accordingly, the company wishes to make a provision of Ghs200,000 for plant overhaul costs in its financial statement for the year to 31^st December 2017 and then to increase this provision by Ghs200,000 every year for the next four years. This will have the effect of spreading the overhaul costs yearly over the years 2017 to 2021.

(b) On 31^st December 2017, the company moved from leased premises into new freehold premises. The lease on the old premises will continue for three more years at an annual cost of Ghs100,000. The lease cannot be cancelled and the premises cannot be sublet or used for any other purpose. The company wishes to make a provision of Ghs300,000 in its financial statements for the year to 31^st December 2017.

(c) In November 2017, the company decided to sell off one of its operations. No buyer had been found at 31^st December 2017 but the sale is expected to result in a loss of Ghs500,000 when it occurs. The company wishes to provide for this loss in the financial statements for the year to 31^st December 2017.

Required

According to the rules of IAS 37, Explain whether any of these three provisions be made?