.3)KK Limited owns a property that is used as its head office in Pretoria. On 1 st January 2020, its carrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, the business recognized cheaper premises found for use as the head office. It was therefore decided to lease the property under an operating lease. The property was valued by a qualified professional who assessed the property’s value as R21 million on 1st July and R21.6 million on 31st December 2020. Explain the accounting treatment of the property in the financial statements for the year ended 31st December 2020. Income statement already included below...SOP required Income statement: Calculation of carrying amount of property as on 1st July:- Particular amount Carrying amount as on 1st July $20 million Remaining life 20 years Depreciation ($20/20 years) 1 million per year Depreciation from 1st January to 1st July: Depreciation for 6 month 0.50 million Carrying value of property as on 1st July ( $20 million-0.5 million) 19.5 million Accounting treatment of revaluation of property: Particular amount Increase in value on revaluation (fair value on revaluation-carrying value as on date) ($21-19.5 million) $1.5 million Accounting treatment of property as on 31st December:- Particular amount Fair value of property on 31december 21.6 million Carrying amount of asset as on 31st December (value as on 1st July-depreciation from July to December) ($21 million-0.5 million) $20.5 million Calculation of revaluation surplus: Fair value on date- carrying value on date ($21.6 million-20.5 million)
1.3)KK Limited owns a property that is used as its head office in Pretoria. On 1
st January 2020, its
carrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, the
business recognized cheaper premises found for use as the head office. It was therefore decided
to lease the property under an operating lease. The property was valued by a qualified
professional who assessed the property’s value as R21 million on 1st July and R21.6 million on
31st December 2020. Explain the accounting treatment of the property in the financial
statements for the year ended 31st December 2020. Income statement already included below...SOP required
Income statement:
Calculation of carrying amount of property as on 1st July:-
Particular | amount |
Carrying amount as on 1st July | $20 million |
Remaining life | 20 years |
1 million per year | |
Depreciation from 1st January to 1st July: | |
Depreciation for 6 month | 0.50 million |
Carrying value of property as on 1st July ( $20 million-0.5 million) | 19.5 million |
Accounting treatment of revaluation of property:
Particular | amount |
Increase in value on revaluation (fair value on revaluation-carrying value as on date) ($21-19.5 million) | $1.5 million |
Accounting treatment of property as on 31st December:-
Particular | amount |
Fair value of property on 31december | 21.6 million |
Carrying amount of asset as on 31st December (value as on 1st July-depreciation from July to December) ($21 million-0.5 million) | $20.5 million |
Calculation of revaluation surplus: | |
Fair value on date- carrying value on date ($21.6 million-20.5 million) | $1.1. million |
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