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a manufacturing company, purchases a property for Ghs1m on 1 January 2016 for its investment potential
a manufacturing company, purchases a property for Ghs1m on 1 January 2016 for its investment potential. The land element of the cost is believed to be Ghs 400,000 and the buildings element is expected to have a useful life of 50 years. At 31 December 2016, local property indices suggest that the fair value of the property has risen to Ghs1.1m.
Requirement
Explain how the property would be presented in the financial statements as at 31 December 2016 if XYZ adopts the:
(i) Cost model; and
(ii) Fair value model
Expert Solution
COST MODEL PRESENTATION IN THE FINANCIAL STATEMENTS AS AT 31 DEC 2016
ASSETS:
PROPERTY Ghs 1 Million
Less: Depreciation Ghs (0.02) Million
PROPERTY Ghs 0.98 Million
??????Note:In Cost Model the property is presented at Initial cost less accumulated depreciation.
Accumulated Depreciation=1 Million/50 Years
=0.02 Million
FAIR VALUE MODEL PRESENTATION IN THE FINANCIAL STATEMENTS AS AT 31 DEC 2016
ASSETS:
PROPERTY Ghs 1.10 Million
Less: Depreciation Ghs (0.02) Million
PROPERTY Ghs 1.08 Million
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