On 1 January Curlew Co bought an investment property for $2,000,000 and paid legal fees of $50,000. The property has a 40-year useful life. Curlew Co uses the IAS 40 fair value model. At 31 December the property's fair value was $2,300,000. What is the effect on profit or loss for the year?

Correct answer: D) Fair value gain of $250,000 and no depreciation

Explanation

Investment property is first measured at cost including transaction costs: $2,000,000 + $50,000 = $2,050,000. Under the fair value model it is remeasured to fair value at each reporting date, with the change going to profit or loss: $2,300,000 - $2,050,000 = $250,000. No depreciation is charged under the fair value model.