Question 7 (c) -Explain Accounting Treatment

QUESTION 7 On 31 December 2016, Semarak Bhd completed the construction of two office blocks in Kuala Terengganu at a total cost of RM4,000,000. It was the intention of the company to rent out the assets once construction is completed. On 1 January 2017, the offices were rented out to Sejahtera Bhd and its subsidiaries and the rental received represents the market rental. Semarak Bhd is required to provide ancillary services to the occupants of the premises. These services however are insignificant to the whole arrangement. The fair value of the property as at 31 December 2017 was RM5,000,000. It is the policy of the company to adopt the fair value model in measuring its investment property. Required: Determine the initial cost of the property at 31 December 2016. Briefly discuss the accounting treatment of the property on 1 January 2017 and its subsequent measurement on 31 December 2017. Show the journal entries to record the transactions for the year ended 31 December 2017. On 1 January 2018 Semarak Bhd decided to occupy the property in line with the relocation of its headquarters. Explain the accounting treatment as results of this transfer. Show the journal entries to record the transactions for the year ended 31 December 2018. (Assuming there is no change in the fair value on the date of the transfer and the remaining useful life of the building is 20 years. The company depreciates all its property, plant and equipment on a straight-line basis where applicable)