Q.
1 Following information pertains to properties of Synthesia Limited (SL):
(i) SL obtained possession of property A from tenants on 30 April 2023 when SL shifted its head
office from property B to property A. Property B was rented out immediately. On 30 April
2023, the fair value of property A was Rs. 740 million, while the fair value of property B was
determined as equal to its carrying amount.
The details of properties A and B are as follows:
Fair value
Date of Cost as on 31 December
Property 2023 2022
purchase
---------- Rs. in million ----------
A 1 January 2021 750 750 720
B 1 July 2021 500 480 440
60% of costs and fair values of both properties refer to the land element.
(ii) On 1 February 2023, SL started construction of property C with a view to earn rentals in the
future. The construction was completed on 30 September 2023 at a total cost of Rs. 430
million. This included Rs. 7 million and Rs. 12 million for professional fees for legal services
and abnormal wastage of material during construction respectively.
Operating losses of Rs. 10 million were also incurred before the property was rented out on 1
December 2023.
Fair value of property C was determined as Rs. 380 million, Rs. 390 million and Rs. 395
million as at 30 September 2023, 1 December 2023 and 31 December 2023respectively.
Other information:
(i) Fair value model is used for subsequent measurement of all investment properties.
(ii) Cost model is used for subsequent measurement of all property, plant and equipment.
(iii) Depreciation is charged using the reducing balance method at a rate of 10%.
(iv) Rental revenue received during 2023 and accrued at 31 December 2023 areRs. 45
million and Rs. 6 million respectively.
(v) Repair and maintenance expenses related to investment property amounted toRs. 25
million.
(vi) All fair values are determined by Alpha Brothers, an independent firm of valuers.
Required:
(a) Prepare the note on ‘Investment property’ to be included in SL’s financial statements
for the year ended 31 December 2023. (11)
Show each property in a separate column.
Columns for total and comparative are not required.
(b) Assuming that SL follows cost model for investment properties, prepare journal entry
to record transfer of property A on 30 April 2023. (02)
A.1(a) Synthesia Limited
Notes to the financial statements
For the year ended 31 December 2023
1: Investment Properties
Property A Property B Property C
---------- Rs. in million ----------
Balance at 1 January 2023 720.0 - -
Addition - - 418.0
(430–12)
Transfer from owner occupied property - (W-1)465.3 -
Transfer to owner occupied property (740.0) - -
Fair value gain / (loss) 20.0 14.7 (23.0)
(740 – 720) (480 - 465.3) (395 – 418)
Balance at 31 December 2023 - 480.0 395.0
Fair value model is used for the subsequent measurement of all investment properties.
The valuation of investment properties was performed by Alpha Brothers, an independent
firm of valuers.
The rental income from investment properties during the year amounted to Rs. 51 million
(i.e. Rs. 45 million received + Rs. 6 million accrued).
Direct operating expenses (repairs and maintenance) of Rs. 25 million were incurred during
the year to generate rental income.
W-1: Fair value / Carrying amount of property B on transfer Rs. in million
Cost 500.0
Accumulated depreciation:
Depreciation for 2021 200(500 × 40%) × 10%×6÷12 10.0
Depreciation for 2022 (200–10)×10% 19.0
Depreciation for 2023 (200–10–19)×10%×4÷12 5.7
(34.7)
Carrying amount (Equal to fair value) as given in Question 465.3
(b) Date Particulars P/R Debit Credit
30-04-2023 Property, plant and equipment (Bal.) 684.9
Accumulated depreciation 65.1
Investment property 750.0
Note : If Investment properties are measured at cost model as per IAS 40, then simply record
the transfer at carrying amount.
W-3: Accumulated depreciation for Property A Rs. in million
Accumulated depreciation:
Depreciation for 2021 300(750×40%) ×10% 30.0
Depreciation for 2022 (300–30)×10% 27.0
Depreciation for 2023 (300–30–27)×10%×4÷12 8.1
65.1
