ACCA FR · Chapter 2 · Question 11 of 11
On 1 July Dunlin Co moved out of its head office building and let it to a third party, so it became an investment property. Dunlin Co measures investment property under the fair value model. On 1 July the building's carrying amount was $1,600,000 and its fair value was $2,000,000. At 31 December its fair value was $2,100,000. How should these changes in value be recognised?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $400,000 in OCI (revaluation surplus) and $100,000 in profit or loss
Explanation
When owner-occupied property becomes investment property carried at fair value, IAS 40 requires IAS 16 to be applied up to the date of change. The increase from $1,600,000 to $2,000,000, which is $400,000, is therefore a revaluation surplus in OCI. After the transfer, fair value changes go to profit or loss: $2,100,000 - $2,000,000 = $100,000.
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