Sekwanele Ltd is a manufacturing company in Windhoek, Namibia, producing and selling steel beams. On 1 January 2019 the company acquired a property with the following details:

..............................................................................................Purchase price

Land: stand number 234 Mandume Ndemufayo ..............900 000

Office building thereon ...........................................................2 200 000

Repairs and maintenance incurred for the year .....................70 000

Approximately 5% of the floor space is used as the administrative head office of the entity while the remainder of the building is leased out in terms of a non-cancellable operating lease to a financial institution at a monthly rental of N$40 000 for a period of 10 years commencing 1 January 2019. The property (land and office building) can only be sold as one complete unit.

The entity values investment property using the fair value model. On 31 December 2019, the end of the reporting period, the above property was valued by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the property being valued. The valuer determined the fair value of the property based on observable prices for similar property, adjusted for the condition and location of the asset. The fair 

value was determined as follows:

Land N$1 100 000

Building N$3 100 000

Profit before tax before taking all of the above information into account, amounted to N$3 000 000 for the reporting period ended 31 December 2019.

Required:

1Discuss how the property should be classified in terms of IAS 40 Investment properties.(5)

2 Journalise all the events and transactions (including cash transactions) to recognize the property in the accounting records of A Ltd for the reporting period 31 December 2019.(6)

3 Disclose the information above in the following notes to the financial statements of A Ltd as at 31 December 2019 according to IFRSs

1. Accounting policy(1)

2. Profit before tax (3)

3. Investment property(5)

Answer rating: 100% (QA)

Answer 32 Journal Entries DateParticularsDebit AmountCredit Amount 1012019Land and Office Building A... View the full answer