Chapter 6
Q. 6.25
Company ALFA purchased a piece of land in the amount of 280,000 lei, commission expenses amounted to 22,000 lei and notary fees amounted to 8000 lei. The land is meant to be rented to third parties. On March 1st, 20X1, immediately after the purchase, the fair value of the asset is 325,000 lei. On December 31st, 20X1, the fair value increases to 337,000 lei and on December 31st, 20X2, the fair value decreases to 330,000 lei. How does ALFA treat the transactions regarding the land in terms of the accounting treatment, noting that the company uses the fair value model for its investment property in the financial years 20X1 and 20X2?
Step-by-Step
Verified Solution
1) March 1st, 20X1—Acquisition of investment property
The initial recognition of the land as investment property is made at its acquisition cost, determined as follows:
Acquisition cost = Acquisition price + Directly attributable expenses
= 280,000 + 22,000 + 8000 = 310,000 lei
310,000 lei Investment property = Accounts payable for non current assets 310,000 lei
2) On March 1st, 20X1—Evaluation of the investment property at fair value
Carrying amount ………………….. 310,000 lei
Fair value …………………………..325,000 lei
Increase of the asset’s value by ……15,000 lei
15,000 lei Investment property = Gains from the valuation of investment property at fair value 15,000 lei
3) On December 31st, 20X1—Evaluation of the investment property at fair value (337,000 lei)
Carrying amount ………………….. 325,000 lei (previous fair value)
Fair value …………………………..337,000 lei (new fair value)
Increase of the asset’s value by ………12,000 lei
12,000 lei Investment property = Gains from the valuation of investment property at fair value 12,000 lei
4) On December 31st, 20X2—Evaluation of the investment property at fair value (330,000 lei)
Carrying amount ………………….. 337,000 lei (previous fair value)
Fair value …………………………..330,000 lei (new fair value)
Decrease of the asset’s value with ……7000 lei
7000 lei Losses from the valuation of investment property at fair value = Investment property 7000 lei