On January 1, the company House Luxury bought a property for $550.000.000 (which
ID: 2549388 • Letter: O
Question
On January 1, the company House Luxury bought a property for $550.000.000 (which included all costs of purchase and the cost to bring the real estate in usable condition). The real estate has been leased over the past year to a lessee who has been renting the entire property. The lessee is paying $1250 per sqm a month for the rent. The real estate has been in somewhat a bad condition but the maintenance had been insufficient in recent years and had been reflecting the renting price. Here is an information about the real estate and its operations:
--> The real estate is 3000 square meters
--> The valuation for the real estate at the end of the year 2017 was $550.000.000
--> The valuation for the plot at the end of 2017 was $100.000.000
--> The company has been paying $400.000 for maintance each year.
--> The Chief's executive sister intends to take care of all accounting and office cost because she like accounting
--> The company paid $200.000 in insurance in 2017
--> Useful life of the property is 50-60 years
At the end of 2017 the company, House Luxury contanced the leese and told him his leese-contract was over. It was agreed that the leese would rent the property in 2018 and 2019. At the same the managers for House Luxury had agreed with a contractor to expend the property with a major improvement what will cost $200.000.000 and the contractor intends to begin as soon the property is available at the beginning of 2020. The contractor estimates that it takes about 9 months to finish the work.
House Luxury plans to use the half of the property under it's own business but rent the other half from January 1, 2021 and make 25 year lease and paying $2250 per square meter per month. The management of the company measures it's assets to IFRS or IAS 40.
a) What is the fair value House Luxary's property it was leased to a third party and is defined as an investment property?
b) What is the book value of the real estate at the end of 2017 assuming it is ued for it's own operations?
c) What is the book value of the real estate at the end of 2017 assuming that half of the property is used in it's own operations and the other hald is rented.
Explanation / Answer
a) fair value House luxary's if it was leased to third party will be $ 550.000.000
b) Book value of the real estate at the end of 2017 is $ 550.000.000
c) Book value of real estate assuming half of the property is used in own operation will be $ 275.000.000