Question 1

On 1 April 20X8 the fair value of Xu's leasehold property was $100,000 with a remaining life
of 20 years. The company's policy is to revalue its property at each year end. At 31 March
20X9 the property was valued at $86,000. The balance on the revaluation surplus at 1 April
20X8 was $20,000 which relates entirely to the leasehold property. Xu does not make a
transfer to realised profit in respect of excess depreciation.
Required:
(1) Prepare extracts of Xu's financial statements for the year ended 31 March 20X9
reflecting the above information.
(2) State how the accounting would be different if the opening revaluation surplus did
not exist. (Kaplan Book)

Question 2
A company revalued its land and buildings at the start of the year to $10 million ($4 million
for the land). The property cost $5 million ($1 million for the land) ten years prior to the
revaluation. The total expected useful life of 50 years is unchanged. The company's policy is
to make an annual transfer of realised amounts to retained earnings.
Show the effects of the above on the financial statements for the year. (Kaplan Book)

Question 3
Mion is a company engaged in the processing and export of Shea butter. Extracts from the
statement of financial position as at 31 December 2013 showed the following;
GH₵
Property, Plant and Equipment:
Land 3,000
Building 12,000
Depreciation (3,600)
NBV 11,400
Additional Information
Depreciation on building is provided at 2% per annum on straight line basis. The building
was revalued on 30 June 2014 at GH₵11,040 and the policy of the company is to incorporate
the revaluations into the books of account.
There is no change in the remaining useful life of buildings.
Required:
Show the income statement and statement of financial position extract at 31 December,
2014 (Suglo’s Book)

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Question 4
Nahari United football club’s statement of financial position at 31 December 2013 includes
the following information:
GH₵
Stadium cost 1,500,000
Depreciation 450,000
1,050,000
Additional information
Depreciation has been provided at 2% on the straight-line basis. The stadium is revalued on
31 march 2014 to GH₵ 1,380,000. There is no change in its remaining estimated future
useful life.
Required:
What is the depreciation charge for the year ended 31 December 2014? (Suglo’s Book)

Question 5
Falcons Ltd acquired a property (land and buildings) for GH₵ 1 million on 1 January 2003.
The land element of the property was estimated at 40% of the property on the date of
acquisition. The building was depreciated at 2.5% on cost with nil residual value. Falcons ltd
continued to depreciate the asset on this basis until 1 October 2014when the property was
revalued at GH₵ 883,750 and the policy of the company is to incorporate the revaluations in
to the books of account. The valuation expert attributed GH₵ 435,000 to land and the
remaining to buildings. The remaining useful life of the property remained unchanged.
Falcon Ltd’s reporting date is 31 December.
Required:
Show the income statement and the statement of financial position extract as at 31
December 2014. (Suglo’s Book)

Question 6
Derek purchased a property costing $750,000 on 1 January 20X4 with a useful economic life
of 10 years. It has no residual value. At 31 December 20X4 the property was valued at
$810,000 resulting in a gain on revaluation being recorded in other comprehensive income of
$135,000. There was no change to its useful life. Derek does not make a transfer to realised
profits in respect of excess depreciation on revalued assets. On 31 December 20X6 the
property was sold for $900,000.
Required:
How should the disposal on the previously revalued asset be treated in the financial
statements for the year ended 31 December 20X6? ((Kaplan Book)

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TRIAL QUESTIONS
Question 1
RoyCo acquired a brand-new property (land and buildings) on 1 January 2016 for GH¢40
million (including GH¢15 million in respect of the land). The asset was revalued on 31
December 2017 to GH¢43 million (including GH¢16.6 million in respect of the land). The
buildings element was depreciated over a 50-year useful life to a zero-residual value. The useful
life and residual value did not subsequently need revision. On 31 December 2018 the property
was revalued downwards to GH¢35 million as a result of the recession (including GH¢14
million in respect of the land).

The company makes a transfer from revaluation surplus to retained earnings in respect of
realised profit.
Required:

Calculate the amounts recognised in profit or loss and in other comprehensive income for the
years ended 31 December 2017 and 31 December 2018.
(November, 2019 Q2b)

Question 2
Ayariga Ltd acquired its head office on 1 January 2007 at a cost of GH¢10 million (excluding
land). The company’s depreciation policy is to depreciate property over 50 years on a straight-
line basis. Estimated residual value is zero.

On 31 December 2011, Ayariga Ltd revalued the non-land element of its head office to GH¢16
million. In accordance with IAS 16 Property, Plant and Equipment the company has decided
not to transfer annual amounts out of revaluation reserves as assets are used. In January 2017
storm damage occurred and the recoverable amount of the head office property (excluding
land) was estimated at GH¢5.8 million.
Required:

In accordance with IAS 36 Impairment of Assets, recommend (with workings) how the above
transaction should be accounted for as at 1 January, 2017. (November 2017, Q2C).

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Question 3
The following trial balance relates to Agenkwa Ltd at 31st March, 2014.
GHC 000 GHC 000
Lease rental 5000
Revenue 1,040,000
Cost of sales 585,800
Distribution costs 15,200
Administrative expenses 39,600
Loan interest paid 9,600
Property – cost 400,000
Property – depreciation at 1st April, 2013 75,000
Plant and equipment – cost 337,200
Plant and equipment –depreciation at 1st April 2013 97,200
Licence – cost 80,000
Licence-amortization at 1st April, 2013 32,000
Trade receivables 81, 400
Inventory – 31st March, 2014 37,600
Bank 3,900
Trade payables 70,400
Ordinary shares of 50p each 100,000
12% loan note (issued 1st April, 2013) 80,000
Taxation 4,000
Income surplus at 1st April, 2013 88,900
1,591,400 1,591,400

The following notes are relevant:

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has not yet been recorded in the books. Agenkwa Ltd has a policy of transferring any excess
depreciation to retained earnings.
2. During the year, Agenkwa Ltd sold some plant that cost GHC40million on 1st December,
2011. The proceeds of this sale were GHC24million and these have been credited to cost of
sales. No other entries have been made relating to the disposal.
Plant and equipment are to be depreciated on the reducing balance basis at a rate of 20% per
annum. Agenkwa Ltd charges a full year’s depreciation in the year of acquisition and none in
the year of disposal.
The licence is being amortized on the straight-line basis at a rate of 20% per annum. All
depreciation and amortization are to be charged to cost of sales.
Required:
(i) Prepare a statement of profit or loss and other comprehensive income for the year ended
31st March 2014.
(ii) Prepare a statement of changes in equity for the year ended 31st March 2014.
(iii) Prepare a statement of financial position as at 31st March 2014.
(November 2014, Q1)

Question 4
Kumbungu Group owns a number of freehold properties throughout Northern Region. Three
of these properties are rented out under annual contracts, the details of which are as follows:
Property Life Cost Value at 31/12/2017 Value at 31/12/2018
GH¢’000 GH¢’000 GH¢’000
1 50 years 200 275 225
2 40 years 180 240 210
3 15 years 150 175 180
All three properties were acquired on 1 January 2017, and their valuation is based on their age
at the date of the valuation. Property 1 is let to a subsidiary (60% ownership) of Kumbungu on
normal commercial terms, while Property 2 and Property 3 are let on normal commercial terms
to companies that are not related to Kumbungu.
Kumbungu adopts the fair value model of accounting for investment properties in accordance
with lAS 40: Investment Properties and the benchmark treatment for owner-occupied
properties in accordance with lAS 16: Property, Plant and Equipment. Annual depreciation,
where appropriate, is based on the carrying value of assets at the beginning of the relevant
accounting period.
Required:

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Prepare extracts for the consolidated income statement of Kumbungu for the year ended 31
December 2018 and the consolidated statement of financial position as at that date in respect
of the above properties.
(May 2019, Q2b)
Question 5
Once an entity has recognized an item of Property, Plant and Equipment as an asset in its books,
the entity can choose between two models (or methods) to account for the asset in subsequent
measurement periods, that is, the period(s) after the asset has been acquired and before its
disposition. The two models are the cost model and the revaluation model.
The entity shall apply the same model to the entire class of property, plant and equipment to
which that asset is of similar nature and use in the entity’s operations.
Required:
Identify TWO differences between the cost and revaluation model for the measurement of
Property, Plant and Equipment.
(May 2018, Q5c)

Question 6
The broad principles of accounting for property, plant and equipment involve distinguishing
between capital and revenue expenditure, measuring the cost of assets, determining how they
should be depreciated and dealing with the problems of subsequent measurement and
subsequent expenditure. IAS 16 Property, plant and equipment has the intention of improving
consistency in these areas.
Required
(a) Explain:
(i) How the initial cost of property, plant and equipment should be measured
(ii) The circumstances in which subsequent expenditure on those assets should be capitalised

(b) Explain IAS 16's requirements regarding the revaluation of non-current assets and the
accounting treatment of surpluses and deficits on revaluation and gains and losses on disposal.
(General Question)

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IAS 40 - INVESTMENT PROPERTY
TRIAL QUESTIONS
Question 1
Tanoso owns the following properties as at 31 December 2015:
Property: Fair value (GH¢million)
Land with future use undetermined 3.2
Factory rented to Tanoso's subsidiary under an operating lease 2.4
10 floor office building (fair value is equal per floor)
with 3 floors used as the subsidiary's head office and seven floors
rented to third parties under an operating lease. 15.0
Empty building held for capital appreciation, but not leased out. 4.1
Tanoso's accounting policy is to hold its investment properties under the fair value model and
its land and buildings under the revaluation model.

Required:
In accordance with IAS 40 Investment Property calculate the carrying amount to be recognised
as investment property in Tanoso's consolidated financial statements as at 31 December 2015.
(November,2016 Q2c)

Question 2
Kumeri Ltd (Kumeri) is a real estate company which reports under International Financial
Reporting Standards (IFRS). The Office Building of Kumeri had a net carrying amount of
GH¢18 million at the beginning of the financial year 1 January 2019. The property was held
under the cost model. As its residual value was estimated at more than its cost due to a buoyant
property market, no depreciation had been charged.

As part of a relocation of the company's business, the property became vacant and was leased
out to a third party on 1 April 2019 (under a six-month short lease). At the time the property
was leased out, its fair value was GH¢22 million.

At the end of the lease, the company decided to transfer the property to its inventories of
properties for sale in the ordinary course of its business. At that date the value of the property
was GH¢21 million. The property was sold in December 2019 for GH¢21.3 million.
The company uses the fair value model for its investment property.

Required:
Determine the amounts to be recognised in profit or loss and in other comprehensive income
in respect of the property for the year ended 31 December 2019.

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 (November, 2020 Q2d)

Question 3
The accounting treatment of investment properties is prescribed by IAS 40: Investment
property.
Required:

(i) Define investment property under IAS 40 and explain why its accounting treatment is
different from that of owner-occupied property.

(ii) Explain how the treatment of an investment property carried under the fair value model
differs from an owner-occupied property carried under the revaluation model.
(November, 2014 Q5a)