The View plc is a commercial wine farm. On 1 January 20X1, it purchased a piece...
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The View plc is a commercial wine farm. On 1 January 20X1, it purchased a piece of vacant land adjacent to its farm for £450 000. An additional £45 000 was paid for property transfer taxes and £5 000 was paid for legal fees. The entire cost was funded from its existing cash resources. The land was initially purchased to earn rental income and for capital appreciation. The land was rented out for festivals and other events for the first eighteen months after acquisition. On 1 July 20X2, The View plc occupied the land for the first time and began planting grapevines on it. The fair value of the land was determined by an appraiser as follows: Date Fair value £ 650 000 700 000 775 000 31 December 20X1 30 June 20X2 31 December 20X2 At 31 December 20X2, The View plc has other land and buildings used for administrative purposes and for farming operations with a carrying amount of £2 400 000 as well as plant and equipment with a carrying amount of £380 000. The straight line method is used for all depreciable assets. The View plc adopts the fair value model for investment property and the cost model for property, plant and equipment. Required: a) Prepare all the journal entries relating to the land for the years ending 31 December 20X1 and 31 December 20X2. (9 marks) b) Briefly discuss, with reasons, whether the change from the fair value model to the cost model is recognised as a change in accounting policy. (4 marks) c) Prepare the accounting policy notes to accompany the financial statements relating to: Investment property • Property, plant & equipment (6 marks) Part B a) Journal entries 01/01/X1 31/12/X1 30/06/X2 Investment property: Land (A) Cash Purchase of land as IP (450 000 + 45 000 + 5 000) Investment property: Land (A) Fair value increase (1) (650 000 - 500 000) Increase in FV of IP for year to 31/12/X1 Investment property: Land (A) Fair value increase (1) Increase in FV of IP for 6 mths to 30/06/X2 PP&E: Land (A) Investment property: Land (A) Transfer of land from IP to PP&E No entry to recognise the FV on 31/12/X2 as entity uses the cost model Dr 500 000 150 000 50 000 700 000 For each j/e, 1 mark for correct description of both Dr / Cr and 1 mark for amount Mark awarded for not processing a j/e at 31/12/X2 Cr 500 000 150 000 50 000 700 000 2 2 2 2 1 The View plc is a commercial wine farm. On 1 January 20X1, it purchased a piece of vacant land adjacent to its farm for £450 000. An additional £45 000 was paid for property transfer taxes and £5 000 was paid for legal fees. The entire cost was funded from its existing cash resources. The land was initially purchased to earn rental income and for capital appreciation. The land was rented out for festivals and other events for the first eighteen months after acquisition. On 1 July 20X2, The View plc occupied the land for the first time and began planting grapevines on it. The fair value of the land was determined by an appraiser as follows: Date Fair value £ 650 000 700 000 775 000 31 December 20X1 30 June 20X2 31 December 20X2 At 31 December 20X2, The View plc has other land and buildings used for administrative purposes and for farming operations with a carrying amount of £2 400 000 as well as plant and equipment with a carrying amount of £380 000. The straight line method is used for all depreciable assets. The View plc adopts the fair value model for investment property and the cost model for property, plant and equipment. Required: a) Prepare all the journal entries relating to the land for the years ending 31 December 20X1 and 31 December 20X2. (9 marks) b) Briefly discuss, with reasons, whether the change from the fair value model to the cost model is recognised as a change in accounting policy. (4 marks) c) Prepare the accounting policy notes to accompany the financial statements relating to: Investment property • Property, plant & equipment (6 marks) Part B a) Journal entries 01/01/X1 31/12/X1 30/06/X2 Investment property: Land (A) Cash Purchase of land as IP (450 000 + 45 000 + 5 000) Investment property: Land (A) Fair value increase (1) (650 000 - 500 000) Increase in FV of IP for year to 31/12/X1 Investment property: Land (A) Fair value increase (1) Increase in FV of IP for 6 mths to 30/06/X2 PP&E: Land (A) Investment property: Land (A) Transfer of land from IP to PP&E No entry to recognise the FV on 31/12/X2 as entity uses the cost model Dr 500 000 150 000 50 000 700 000 For each j/e, 1 mark for correct description of both Dr / Cr and 1 mark for amount Mark awarded for not processing a j/e at 31/12/X2 Cr 500 000 150 000 50 000 700 000 2 2 2 2 1
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a Journal entries relating to the land for the years ending 31 December 20X1 and 31 December 20X2 20X1 Debit Land 500 000 Credit Cash 500 000 20X2 Deb... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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