On 1 January 2017, Addo Limited acquired an investment property for GHC 11 million. The purchase agreement provided for settlement in full on 31 December 2017 (an appropriate discount factor is 10%). GHC 1 million transfer duty and GHC 20 000 legal fees were incurred and paid during January 2017 in respect of the acquisition of this property. Rates for the year ended 31 December 2017 of GHC100 000, were paid on 30 November 2017. All amounts given are exclusive of value added tax. During 2017, Addo Limited constructed an investment property, expenditure on which is detailed below: Labour: GHC 2 million (GHC 200,000 of which was incurred due to restore faulty work pe rformed by ‘scab’ labourers whilst the company’s employees were on strike and a further GHC 100,000 was in respect of unproductive time whilst waiting for the foundations to dry); Materials: GHC 8 million (GHC1,000,000 of which was incurred to restore faulty work performed by ‘scab’ labourers whilst the company’s employees were on strike and an estimated further GHC 500,000 in normal wastage). Other resources: GHC 2 000 000. Addo Limited completed the self-constructed building on 30 November 2017 and made an operating loss on this investment property of GHC 500,000 (due to low initial occupancies) for the month of December 2017. It is anticipated that this investment property will reach break -even occupancy during August 2018, and the total budgeted operating loss to that date is estimated to be GHC 2 million. Required: Calculate the cost of each of the investment properties to be recognised by Addo Limited upon initial recognition of the investment properties.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On 1 January 2017, Addo Limited acquired an investment property for GHC 11 million. The purchase agreement provided for settlement in full on 31 December 2017 (an appropriate discount factor is 10%). GHC 1 million transfer duty and GHC 20 000 legal fees were incurred and paid during January 2017 in respect of the acquisition of this property. Rates for the year ended 31 December 2017 of GHC100 000, were paid on 30 November 2017.
All amounts given are exclusive of value added tax.
During 2017, Addo Limited constructed an investment property, expenditure on which is detailed
below:
Labour: GHC 2 million (GHC 200,000 of which was incurred due to restore faulty work pe
rformed by ‘scab’ labourers whilst the company’s employees were on strike and a further GHC 100,000 was in respect of unproductive time whilst waiting for the foundations to dry);
Materials: GHC 8 million (GHC1,000,000 of which was incurred to restore faulty work
performed by ‘scab’ labourers whilst the company’s employees were on strike and an estimated further GHC 500,000 in normal wastage).
Other resources: GHC 2 000 000.
Addo Limited completed the self-constructed building on 30 November 2017 and made an operating loss on this investment property of GHC 500,000 (due to low initial occupancies) for the month of December 2017. It is anticipated that this investment property will reach break
-even occupancy during August 2018, and the total budgeted operating loss to that date is estimated to be GHC 2 million.
Required:
Calculate the cost of each of the investment properties to be recognised by Addo Limited upon initial recognition of the investment properties.
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