- 5 Marks
FR – May 2019 – L2 – Q2b – Financial Reporting Standards and Their Applications
Preparation of extracts from consolidated financial statements related to investment properties of Kumbungu Group
Question
Kumbungu Group owns a number of freehold properties throughout Northern Region. Three of these properties are rented out under annual contracts, the details of which are as follows:
| Property | Life | Cost (GH¢’000) | Value at 31/12/2017 (GH¢’000) | Value at 31/12/2018 (GH¢’000) |
|---|---|---|---|---|
| 1 | 50 years | 200 | 275 | 225 |
| 2 | 40 years | 180 | 240 | 210 |
| 3 | 15 years | 150 | 175 | 180 |
All three properties were acquired on 1 January 2017, and their valuation is based on their age at the date of the valuation. Property 1 is let to a subsidiary (60% ownership) of Kumbungu on normal commercial terms, while Property 2 and Property 3 are let on normal commercial terms to companies that are not related to Kumbungu.
Kumbungu adopts the fair value model of accounting for investment properties in accordance with IAS 40: Investment Properties and the benchmark treatment for owner-occupied properties in accordance with IAS 16: Property, Plant and Equipment. Annual depreciation, where appropriate, is based on the carrying value of assets at the beginning of the relevant accounting period.
Required:
Prepare extracts for the consolidated income statement of Kumbungu for the year ended 31 December 2018 and the consolidated statement of financial position as at that date in respect of the above properties.
Find Related Questions by Tags, levels, etc.
- Tags: Fair Value Model, IAS 16, IAS 40, Investment Property, Property Valuations
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAY 2019