Question
QUESTION ONE: Fair value measurement (Total: 4 marks) Boorandara Council, a Government Council, decides to increase tourism in its locality to supplement its budget.
QUESTION ONE: Fair value measurement (Total: 4 marks) Boorandara Council, a Government Council, decides to increase tourism in its locality to supplement its budget. As a result of this decision, the Council contacts developers to build hotels within its locality to cope with the expected demand from tourists and visitors. The Council decides to contribute land to a developer, Abraham Ltd, who will build a hotel on the land. The Government Council specifies that whilst Abraham Ltd owns the land and hotel, the hotel must continue to be located on the land in perpetuity. Abraham Ltd decides to build a 5-star hotel and borrowed money from its venture partners to fund the construction of the hotel. Construction is completed and the hotel is always fully booked as tourists and domestic visitors flock to the locality. Abraham Ltd now wants to measure the land and hotel at fair value. It analyses the document pertaining to the transfer of the land by the Boorandara Council. It determines that the restriction imposed by the Boorandara Council does not apply to market participants who might purchase the land and hotel. Additional analysis reveals that Abraham Ltd is not prevented from selling the land and hotel. Without the restriction on the use of the land, its land could be used for residential development. In addition, the land is also subject to an easement. The easement grants a utility company the legal right to run power lines across the land donated by the Council. REQUIRED: 1.1 Discuss how Abraham should apply AASB 13 Fair Value Measurement to measure the fair value of the land and hotel. (4 marks)
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