On Jan 1 2017, Pelangi Indah Berhad purchased a 12 floor building located in the centre of Johor Bharu city for RM 2.5 million.   Professional fees for legal service and property transfer taxes expenses incurred in acquiring the building were amounted to RM 900,000. Nine of the floor was rented out to Langit Biru Ltd, one of the subsidiary of Pelangi Indah Berhad, while the remaining floor is used by Pelangi Indah Berhad.

It was estimated that the building will have economic life of 90 years. Based on the market condition as well as recent prices of similar property, Pelangi Indah Berhad reported the fair value of the building for the subsequent years as follows:

·         31 December 2017- RM 6.5 million

·         31 December 2018- RM 8.4 million

·         31 December 2019- RM RM 7.3 million

·         31 December 2020- RM –RM 9.15 million

Rental income received annually was RM 75,000. Pelangi Indah Berhad adopted the fair value model and the financial year end for both companies is 31 December.

You are required to:

i.Determine whether the building is qualified to be treated as investment property by Pelangi Indah Berhad and state reason for your answer. (2 marks)

ii.Discuss the accounting treatment pertaining to the building for Pelangi Indah Berhad . Your answer should include the accounting treatment applied by the company for each of the relevant years.

(4 marks)   

iii.Show relevant journal entries for Pelangi Indah Berhad pertaining to the building (6 marks)

iv.State the differences between fair value model and revaluation model.

(3 marks)