CHAPTER 4: IAS 40 INVEST PROPERTY
ANSWERS
01. (a) Under the cost model the property will be depreciated over 50 years for 3 years up to
the date of disposal. Therefore, at the disposal date the carrying value would have been
Rs. 35m – (Rs. 35m/50 × 3 years) = Rs. 32.9m and the profit on disposal Rs. 7.1m (Rs.
40m – Rs. 32.9).
Under the fair value model, the property will not be depreciated hence the loss on
disposal would be Rs. 2m (Rs. 40m – Rs. 42m).
02. (c) Under the fair value model, the property will not be depreciated hence the gain on
valuation would be Rs. 100 million (Rs. 300 million – Rs. 200 million).
03. (b) Asset A would be classed as a non-current asset held for sale under IFRS 5. Assets C and
D would both be classified as property, plant and equipment under IAS 16.
04. (a) As SL uses the fair value model for investment properties, the asset should be revalued
to fair value before being classed as an investment property. The gain on revaluation
should be taken to other comprehensive income, as the asset is being revalued while
held as property, plant and equipment.
At 1 October, the carrying amount of the asset is Rs. 19.5 million, being Rs. 20 million
less 6 months’ depreciation. As the fair value at 1 October is Rs. 23 million, this leads to
a Rs. 3,500,000 gain which will be recorded in other comprehensive income.
05. (b) The fair value gain of Rs. 1 million (Rs. 9m – Rs. 8m) should be taken to the statement
of profit or loss. Costs to sell are ignored and, since entity uses the fair value model, no
depreciation will be charged on the building.
06. (b) Gain or loss on disposal is recognised in profit or loss.
07. (c) Each portion is classified separately when separable.
08. (a) Initial measurement is at cost. Subsequently there is choice of cost model and fair value
model.
09. (c) This is change in policy and will be justified only if it would result in more appropriate
presentation.
10. (b) & (d) Property occupied by employees is considered owner occupied property and property
being developed for resale is inventory.
11. (b) Profit or loss Rs. 0.4 million and Other comprehensive income Rs. 3 million
12. (b) & (d) A building owned by an entity and leased out under an operating lease & Land held for
long term appreciation
13. (d) Residual value of the property
14. (d) Property transfer taxes are a directly attributable cost.
15. (b) Cost model Rs. 40 – (35 – 35/35 years x 3 years) = Rs. 8 million gain
Fair value model Rs. 40 – 42 = Rs. 2 million loss
