HMI Building Ltd. (HBL) purchased a piece of vacant land on March 1, 2020, for $345,000, and incurred an additional $24,000 in transaction costs as part of this purchase. HBL built an apartment building on this land for $1,235,000, which was completed on November 30, 2020, and is expected to have a useful life of 50 years. HBL incurred an additional $1,500 in legal costs on November 30, 2020, to register the addition of the property to the land title. In December 2020, HBL incurred $35,000 in costs to repair accidental employee damage to the apartment building, which occurred when construction equipment was being removed from the premises. HBL had the investment property appraised on December 31, 2020, and the value of the property was determined to be $1,655,000. HBL follows IFRS for reporting purposes. Required: a) Assume that HBL uses the cost model to classify the investment property and uses the straight-line method to record depreciation. Prepare the journal entries required for HBL to record the 2020 transactions. b) Assume that HBL uses the fair value model to classify the investment property. Prepare the journal entries required for HBL at December 31, 2020.
HMI Building Ltd. (HBL) purchased a piece of vacant land on March 1, 2020, for
$345,000, and incurred an additional $24,000 in transaction costs as part of this
purchase. HBL built an apartment building on this land for $1,235,000, which was
completed on November 30, 2020, and is expected to have a useful life of 50 years.
HBL incurred an additional $1,500 in legal costs on November 30, 2020, to register the
addition of the property to the land title. In December 2020, HBL incurred $35,000 in
costs to repair accidental employee damage to the apartment building, which occurred
when construction equipment was being removed from the premises.
HBL had the investment property appraised on December 31, 2020, and the value of
the property was determined to be $1,655,000. HBL follows IFRS for reporting
purposes.
Required:
a) Assume that HBL uses the cost model to classify the investment property and uses
the straight-line method to record
for HBL to record the 2020 transactions.
b) Assume that HBL uses the fair value model to classify the investment property.
Prepare the journal entries required for HBL at December 31, 2020.
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