Question 3 (30 marks) Central Holdings Ltd (Central) owns Property A, which was purchased on 1 May 2013 for $4,000,000, of which $1,600,000 was considered to be related to the land on which the building is situated. Central used this property as its general office for operating purposes. The company has followed a policy of depreciating the building at the rate of 4 per cent on cost per annum and no depreciation is charged on freehold land. On 31 December 2017 the property was valued by a firm of chartered surveyors at $7,200,000 of which $3,600,000 was considered attributable to the value of the land. The surveyors further estimated that the property possessed a remaining useful life of 25 years from 1 January 2018. The property market went down in 2018. The property was valued by the surveyors again on 31 December 2018. The fair value of the property became $6,400,000 and $2,400,000 was considered attributable to the value of the building. Central purchased another property-B- for $5,000,000 on 1 January 2018 solely for rental purposes. The estimated useful life of this property was 25 years. The fair value of this property on 31 December 2018 was $6,500,000. In 2019, Central decided to move its general office to Mainland China. Property A was sold to a third party on 30 September, 2019 for $5,000,000. Required: a Using the above information about Central, prepare accounting journal entries (with dates and narratives) in 2017 and 2018. (16 marks) b Show the details relating to the properties which would appear in Central's statement of financial position and statement of profit or loss and other comprehensive income on 31 December 2018. (8 marks) c Prepare accounting journal entries to record the disposal of Property A in 2019 (with dates and narratives). (6 marks) Question 3 (30 marks) Central Holdings Ltd (Central) owns Property A, which was purchased on 1 May 2013 for $4,000,000, of which $1,600,000 was considered to be related to the land on which the building is situated. Central used this property as its general office for operating purposes. The company has followed a policy of depreciating the building at the rate of 4 per cent on cost per annum and no depreciation is charged on freehold land. On 31 December 2017 the property was valued by a firm of chartered surveyors at $7,200,000 of which $3,600,000 was considered attributable to the value of the land. The surveyors further estimated that the property possessed a remaining useful life of 25 years from 1 January 2018. The property market went down in 2018. The property was valued by the surveyors again on 31 December 2018. The fair value of the property became $6,400,000 and $2,400,000 was considered attributable to the value of the building. Central purchased another property-B- for $5,000,000 on 1 January 2018 solely for rental purposes. The estimated useful life of this property was 25 years. The fair value of this property on 31 December 2018 was $6,500,000. In 2019, Central decided to move its general office to Mainland China. Property A was sold to a third party on 30 September, 2019 for $5,000,000. Required: a Using the above information about Central, prepare accounting journal entries (with dates and narratives) in 2017 and 2018. (16 marks) b Show the details relating to the properties which would appear in Central's statement of financial position and statement of profit or loss and other comprehensive income on 31 December 2018. (8 marks) c Prepare accounting journal entries to record the disposal of Property A in 2019 (with dates and narratives). (6 marks)
