Can someone please tell me the answer as well as what IAS standard this problem
ID: 2521626 • Letter: C
Question
Can someone please tell me the answer as well as what IAS standard this problem is dealing with
13. FL Inc. had its head office on 30 June 20xs, a building nearby, which it was renting to Unfortunate Limited, was destroyed. As Unfortunate Limited was a valued customer, FL decided to lease 80% of the head office to them as a 'replacement' .The head office was purchased on the 1 January 20X5 for $600 000 (total useful life: 10 years) On the 30 June 20X5, the fair value of the head office was C800 000. There was no change in fair value at 31 December 20X5 FL uses: the fair value model to measure its Investment Property: and the cost model to measure its property, plant and equipment. located in De Rust, South Africa. During a freak' landslide Required: Provide the journal entries in the books of FL for the year ended 31 December 20X5.Explanation / Answer
This problem is dealing with 2 IAS:-
1. IAS 40 — Investment Property
2. IAS 16 — Property, Plant and Equipment
If in case the company uses fair value model in accordance with IAS 40, it will have to recognize the revaluation gains in its net profit and thus the journal entry on 31-12-20X5 will be:-
Dr. Building 200000(800000-600000)
Cr. Revaluation gains 200000
(Being revaluation gains for the year booked)
If in case the company uses cost model in accordance with IAS 16, there will only be an entry for charging depreciation since the asset is already booked at cost on the date of purchase that is 01-01-20X5.
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