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Homework answers / question archive / Grey Stone Limited owns various properties and has a 31 December year-end

Grey Stone Limited owns various properties and has a 31 December year-end

Accounting

Grey Stone Limited owns various properties and has a 31 December year-end.

The company applies the cost model when recognising its investment properties.

Grey Stone Limited recently appointed new auditors, and the 31 December 2020 financial statements will be the first audited by the new auditors.

During the audit process, the new auditors suggested that Grey Stone Limited consider using the fair value model to recognise and account for their investment properties. The reason being that this will give a more relevant and reliable presentation of the properties and the company’s business.

The board called a meeting to discuss the matter, and it was concluded that the company would change its method for accounting for investment properties from the cost model to the fair value model.

The company has not bought any new properties recently, and the total investment property values were as follow:

Cost Accumulated depreciation

31 December 2019 R5 250 000 R1 575 000

31 December 2020 R5 250 000 R2 100 000

The depreciation for the current year has already been processed in Grey Stone Limited’s records.

Grey Stone Limited appointed an independent appraiser to determine the fair value of their investment property portfolio, and the following values were reported:

• 31 December 2019 R10 500 000

3.1) Prepare the journal entries required in the records of Grey Stone Limited to account for the change in the investment property accounting policy for the financial year ended 31 December 2020. (8 marks

) 3.2) Prepare the note disclosure required to account for the change in accounting policy in the 31 December 2020 financial statements of Grey Stone Limited. Comparative amounts are not required. (12 marks)

• 31 December 2020 R12 000 000

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