EXAMPLE OF INITIAL AND SUBSEQUENT MEASUREMENT

SUBSEQUENT MEASUREMENT OF INVESTMENT PROPERTY On 1 July 2012, DRB Bhd acquired a building with an estimated life of 30 years with an undetermined future use for RM3,000,000. The fair value of the building given by an independent valuation on 30 June 2013 and 2014 was RM4,500,000 and RM4,100,000 respectively.

COST MODEL Accounting treatment: Building is classified as investment property and is measured at the initial cost of RM3,000,000 on acquisition on 1 July 2012. On 30 June 2013, it is measured at cost less accumulated depreciation of RM2,900,000 (RM3,000,000 – RM100,000). On 30 June 2014, it is measured at the carrying amount of RM2,800,000 (RM3,000,000 – RM200,000). The fair value changes have been ignored since the cost model was adopted.

Journal entries: 1 July 2012

Dr.

Investment property Bank

RM3,000,000 RM3,000,000

Cr.

Depreciation expense Accumulated depreciation

RM 100,000 RM 100,000

Cr.

Depreciation expense Accumulated depreciation

RM 100,000 RM 100,000

Cr. 30 June 2013 Dr.

30 June 2014 Dr.

COST MODEL Statement of Profit or Loss & Other Comprehensive Income FYE 30 June

Depreciation expense

2013

2014

RM100,000

RM100,000

Statement of financial position as at 30 June Investment property

2013

2014

RM2,900,000

RM2,800,000

FAIR VALUE MODEL Accounting treatment: The building is classified as an investment property on 1 July 2012 at the initial cost of RM3,000,000. The fair value of the building on 30 June 2013 and 2014 is RM4,500,000 and RM4,100,000 respectively. Consequently, RM1,500,000 will be credited to the SOPL for the year ended 30 June 2013 and RM400,000 is debited to the SOPL for year ended 30 June 2014 as changes in fair value of the investment property.

Journal entries: 1 July 2012

Dr. Cr.

30 June 2013

Dr.

30 June 2014

Dr.

Cr.

Cr.

Investment property Bank

RM3,000,000 RM3,000,000

Investment property SOPL – gain on valuation

RM1,500,000 RM1,500,000

SOPL – loss on valuation Investment property

RM400,000 RM400,000

FAIR VALUE MODEL Statement of Profit or Loss & Other Comprehensive Income FYE 30 June Change in fair value of investment property

2010

2011

RM1,500,000 (gain)

RM400,000 (loss)

Statement of financial position as at 30 June Investment property

2010

2011

RM4,500,000

RM 4,100,000