QUESTION $2$

On $1$ January $2021,$ Nobleman plc agreed to buy a luxury property in London for $12$ million

from Aristocrat plc$.$ Contracts were exchanged in June $2021$ and over the six$-$month period

from the agreement to the exchange of the contracts, London$$s property prices had significantly

risen. Belgravia plc sold an identical property for $15$ million.

Nonetheless, in order to honour the gentlemen$$s agreement stipulated with the chief executive

of Nobleman plc$,$ the director of Aristocrat plc agreed to exchange contracts at the original price

of $12$ million.

The legal costs to Nobleman plc of buying the property were $120,000$ and the selling costs to

Aristocrat plc were $180,000.$

Nobleman plc estimates that from the ownership of the property they can derive an annuity of

$1$ million per year for the following $30$ years.

The cost of capital is expected to remain constant at $5\%.$

Requirement

$($a$)$ From the data provided in the question, identify various values for the initial measurement

of the property in the financial statements of Nobleman plc$.$

$8$ Marks

$($b$)$ Paradox plc$,$ a company operating within the pharmaceuticals sector, is reviewing the fair

value of certain assets in accordance with IFRS $13$ Fair Value Measurement.

The company carries an asset that is traded in different markets and is uncertain as to which

valuation it should use. Under IFRS, the asset has to be valued at fair value. Paradox plc

currently buys and sells the assets in the Asian market. The data in relation to the asset is

set out below:

Year to $31$ December $2020$

American

market

European

market

Asian

market

Volume of market $$ units $16$ million $8$ million $4$ million

Price $766488$

Cost of entering the market $8812$

Transaction costs $488$

Discuss, with relevant computations, how Bronson plc should $$fair value$$ the above asset.

$6$ Marks

$($c$)$ Discuss, giving examples, the extent to which the recent $$crisis of fair$-$value accounting$$

$($Laux and Leuz, $2009)$ illuminates old accounting issues and trade$-$offs.

$11$ Marks

Total $25$ Marks