Tiffany Limited leases a building from Coventry Limited under an operating lease. Coventry Limiteds accounting policy for investment properties is the fair value model. The operating lease is not classified as a shortterm lease and the underlying asset is not of low value. Details of the building are below:

Purchased for R on the January useful life years

Fair Value of the building Rst July

Fair Value R December

On the st June the building Tiffany was occupying caught on fire. Subsequent investigations found that the fire was caused from an electrical short power surge when the electricity came back on after loadshedding. Unfortunately, the health inspector declared the building unsafe to be occupied. Coventry fortunately had another premises available from the st of July which was suitable for Tiffany. Tiffany negotiated on the rental for this premises including no rental for July and August while Tiffany is setting up as this new building was occupied by Coventrys admin and financing division before vacating on the th of June and had to be re structured for Tiffanys purposes.

Yearend of Coventry Limited is st of December.

Required:

Explain how the building should be accounted for in the financial statements of Coventry Limited

Prepare the journal entries in the books of Coventry Limited for the year ended st December for the transactions noted above

Please include dates, narrations and all workings as marks awarded for this.

Answer rating: 100% (QA)

1 Accounting for the Building in Coventry Limiteds Financial Statements Coventry Limited uses the fa... View the full answer