Sonnet is a public limited company that operates a national chain of supermarkets selling food and household
Question:
Sonnet is a public limited company that operates a national chain of supermarkets selling food and household consumables.
Sonnet buys up available land in suitable locations outside town centers, for potential development of future stores. Sonnet does not have a policy of revaluing its land and buildings unless they are investment property.
At 30 September 2021 Sonnet held:
- Land that had cost $20m and that had not yet been developed.
- Land on which construction of a new store had started at a total cost of $30m.
- Land which Sonnet had purchased (at a cost of $5m) but had decided was unsuitable for development as a store. Instead, during November 2020, Sonnet began development on the land for the construction of residential property, from which it would earn rental income. The land had a fair value of $10m at that date. It was not possible to assign a fair value to the property during the course of construction. Construction was completed on 1 April 2021 at a total cost of $30m.
The fair value of the land and property at that date was $45m. There was no change in the fair value of the land and property at the year end.
Required:
1) Discuss how to account for these items in the financial statements of Sonnet for the year ending 30 September 2021.
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon