Tai Fei Semiconductor Limited

Tai Fei Semiconductor Limited (Tai Fei) is a global semiconductor manufacturer. The company was granted a piece of land by the government to develop its semiconductor centre. On 1st January 2019, the company started to construct a property at the site. The property was used as a semiconductor research and production centre (the centre). The construction costs relating to the centre were:

Cost of construction materials before trade discount of 20%	56,250,000
Salary of construction workers for six months to 30 June 2019	4,800,000
Overheads related to the construction	3,600,000
Payment to external consultants related to the construction	2,000,000
Expected dismantling and restoration costs (note 3)	500,000

Notes:

1. Tai Fei could not receive the 2% cash discount from the supplier as payment was settled after the discount period.

2. The centre was completed and was put into use on 1 July 2019.

3. The centre is expected to have a useful life of ten years. According to the agreement with the government, Tai Fei is required to dismantle the centre and restore the site to its original condition when the centre ceases to be used. These restoration costs are estimated in present value.

4. Tai Fei believes that within 5 years, the centre will need a major repair to ensure that it continues to generate economic benefits for the next five years. The estimated cost of the repair at 30 June 2024 was $6,000,000.

5. Tai Fei passed the safety review conducted by the government and obtained a license to operate the centre. A one-time fee of $100,000 was paid on 30 June 2019.

6. The fair value of the centre was $63,000,000 on 31 December, 2019.

In 2020, Tai Fei sold all its business and removed all the equipment from the centre. The company continued to hold the property for investment purposes and rented it out to a competitor on 1 July 2020 in an arms length transaction. On that day, the fair value of the property was $45,000,000. On 31 December 2020, the fair value of the property was $65,000,000.

Tai Fei used the revaluation model for its property, plant and equipment and fair value model for its investment properties. The company revalues its property, plant and equipment at every year-end but it does not transfer the revaluation surplus to retained earnings annually. The company has its financial year-end date on 31 December.

Required:

(a) With reference to HKAS 16, explain the rationale that the centre should be treated as Property, plant and equipment when it was put into use on 1 July 2019.

(b) Determine the initial cost of the centre on 1 July 2019.

(c) Using the above information and based on the appropriate accounting standards in Hong Kong, prepare all necessary accounting journal entries relating to the property for the years 2019 and 2020. Show all dates. Show all workings. Narrative is not required.

(d) Prepare extracts of the statement of financial position as at 31 December 2020 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2020 in respect of the property.