HP Properties is an investment company that invests in properties, amongst other things.

Details of some of the company's properties are as follows:

Beach Mall Property

HP Properties Limited acquired this property on 1 June 2019 for R40 000 000, and the useful life of the property was estimated as 50 years. The property consists of several shops, and all the shops are rented out to various businesses. HP Properties Limited does not occupy any part of the property.

The following relates to the property:

Date                                         Market Value

31 December 2019                   R42 500 000

31 December 2020                   R42 250 000

31 December 2021                   R43 000 000

HP Office Property

The HP Office Property is a small property purchased by HP Properties Limited on 1 January 2020 for R3 500 000, of which R500 000 is related to the land. The useful life of the building was estimated at 20 years and the residual value at R1 200 000. HP Properties Limited uses the property as office space for their own operations.

The following relates to the property:

Date                                         Market Value (Land)                          Net replacement cost (Building)

31 December 2020                  R525 000                                            R2 900 000

31 December 2021                  R550 000                                            R3 100 000

Additional information:

* HP Properties Limited accounts for investment properties using the fair value model.

* HP Properties Limited accounts for all other properties using the revaluation model.

* Revaluations are done at the end of every second year, and all accumulated depreciation is eliminated on revaluation.

* Transfers from the revaluation surplus are made only once the related asset is disposed of.

* All depreciation is accounted for using the straight line basis.

* Assume that all useful lives and residual values are reviewed annually and remained unchanged.

* Ignore any tax implications.

REQUIRED:

1 Discuss how HP Properties Limited should classify the above mentioned properties. No calculations are required.

2. Prepare the journal entries required in the records of HP Properties Limited for the financial year ended 31 December 2021 to account for the above mentioned properties . Show all workings.

3. Prepare the Statement of Profit or Loss and Other Comprehensive Income of HP Properties Limited for the year ending 31 December 2021. Comparatives are required. Show all workings.

 

Answer rating: 100% (QA)

1 The HP Office Property should be classified as an investment property using the fair value model T... View the full answer