Question : XYZ Properties Ltd possessed the following three properties in Hong Kong

Property X It was acquired on 1 January 2013 with cost of $45 million which was used for warehouse purpose; the fair value on 31 December 2021 was $56 million.

Property Y It was bought on 1 January 2018 with cost of $36 million which was used for earning the rental income, as at 1 January 2021, the fair value is $40 million while at 31 December 2021, was $44 million.

Property Z The company was to promote a residential development for general public to purchase during 2021, the construction activities had significantly finished and the balance of costs carried in books is $380 million.

In the board meeting held on 31 January 2022, the company moved the storage of its inventories in Property X to a new production plant in Foshan. At 31 December 2021, all X, Y properties were vacant. In view of economic downturn due to the outbreak of corona-virus disease, and slump in property market, it is forecasted that the whole project on properties Z will realize a loss of $80 million.

XYZ Properties Ltd has adopted following accounting policies on properties it possess: i. the building under property, plant and equipment at cost model and depreciated the cost of building with the estimated useful life of 30 years, ii. the investment property at fair value model, and iii. Properties for sale as inventories.

Required: a. Determine the classification of these three properties and briefly explain the reason(s) of classification; address the accounting treatment and state whether depreciation is required for each properties. Then, calculate the respective amounts to be recognized on the financial statements as at 31 December 2021.

b. Extracts of Statement of Financial Position and Statement of profit or loss on the same date are required.

Note: you have to state the assumptions when you classify the above properties.

Depreciation should be treated as administration expenses, while change in investment property value is classified either as other income or other expenses.