Question 3

1. On 1 January 2020, Celine Ltd, a manufacturing firm, purchased a property for P1 million for its investment potential. The cost of the land element was estimated to be P400,000. The structure was projected to last 50 years. On 31 December 2021, local property indices indicated that the property's fair market value had increased to P1million.

Celine Ltd expanded into a tiny rural village, where it purchased an old house that had been transformed into offices. Celine Ltd's business in this location is still growing, and as a result, the house is not fully occupied by the company. The house includes a modest flatlet that is now rented out. This portion of the house will eventually be used for business purposes as well. The management is unsure how to classify this property in accordance with IAS40.

Required: Show how the property would be presented in the financial statements as at 31 December 2021 if:

1. The cost model was adopted (7 marks)
2. The Fair Value Model was adopted (3 marks)
3. Explain to Celine management how there are supposed to treat the old house they bought in accordance with IAS40. Give reasons for your answer (5 marks)

2. Differentiate the following:

1. Current tax and deferred tax (4 marks)
2. Deferred tax liability and deferred tax asset (4 marks)
3. Permanent and temporary differences (2 marks)