Question
Tamarind Properties buys a rental building and moves out of its head office to lease it. Measure both under IAS 40's fair value model, including the IAS 16 revaluation at the date of transfer.
Statements in this challenge
- Initial CostNumeric Answer
- Gain in OCINumeric Answer
- Journal EntriesJournal Entry
- Gain in ProfitNumeric Answer
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Initial cost captures everything needed to bring the asset to its location and working condition — purchase price, import duties, site preparation, installation and testing. After recognition, subsequent expenditure is capitalised only if it improves the asset beyond its original standard; otherwise it is repairs.
Common mistakes
- Expensing delivery, installation or testing costs that form part of initial cost.
- Capitalising routine maintenance, or expensing an upgrade that genuinely extends useful life.
- Including recoverable input tax or abnormal wastage in the cost of the asset.
IFRS vs US GAAP: IFRS permits the revaluation model for a whole class of assets; US GAAP requires historical cost.
Further readingIAS 16: initial cost and depreciation