Land Mark Solution Harvard Case Solution & Analysis

Answer of 1st question:

Double Entries Under Cost Model according to IAS 40 INVESTMENT PROPERTIES
DateParticular Debit Credit
31-Dec-03Land £                    1,000.00
Building £                    1,000.00
Bank £                   2,000.00
31-Dec-04Depreciation Expense £                        100.00
Investment Property £                       100.00
31-Dec-05Depreciation Expense £                        100.00
Investment Property £                       100.00
31-Dec-06Depreciation Expense £                        100.00
Investment Property £                       100.00
31-Dec-06Impairment Loss £                        200.00
Investment Property £                       200.00
`
 Double Entries Under Revaluation/Fair Value Model according to IAS 40 INVESTMENT PROPERTIES
DateParticular Debit Credit
31-Dec-03Land £                          1,000
Building £                          1,000
Bank £                         2,000
31-Dec-04Depreciation Expense £                              100
Accumulated Depreciation on Building £                             100
31-Dec-04Investment Property £                              400
Revaluation Reserve £                             400
31-Dec-05Depreciation Expense £                              144
Accumulated Depreciation on Building £                             144
31-Dec-05Investment Property £                                44
Revaluation Reserve £                               44
31-Dec-06Depreciation Expense £                              138
Accumulated Depreciation on Building £                             138
31-Dec-06Revaluation Reserve-£                             218
Investment Property-£                            218

Land Mark Solution Harvard Case Solution & Analysis

Calculation:

Calculation of fair value on Cost Model
Particular2003200420052006
Historical Cost of Building             1,000            1,000            1,000            1,000
Depreciation Expense                    -                100                100                100
Accumulation Depreciation on Building                    -                100                200                300
Net Book Value             1,000                900                800                700
Fair Value1,0001,3001,100500
Impairment Loss                    -                400                300             (200)
Calculation of fair value on Revaluation Model
Particular2003200420052006
Historical Cost of Building             1,000            1,000            1,000            1,000
Revaluation                    -                   -                400                100
Revalued Value             1,000            1,000            1,300            1,100
Depreciation on Building                    -                100                144                138
Accumulated Depreciation                    -                100                244                382
Net Book Value             1,000                900            1,056                718
Fair Value             1,000            1,300            1,100                500
Revaluation/Impairment                    -                400                  44             (218)

 

 

 

Answer of 2nd Question:

Relevant Information and Reliable Information:

According to abunch of IFRS1, IAS 1 and IAS 40 INVESTMENT PROPERTIES, and fundamental accounting, the Reliable Information must be the information that isappropriately true and fair. According to thesamebasis, Relevant Information is that information which is used to make some decision which helps the management.

The cost model provides true and fair values as per historical accounting records, on the ground that it is reliable information of the assets because it has a clear view according to your investment outflow and inflow.

The fair value and revaluation model are adequately same, and evidently itprovides the information for management to make a decision. It is better to give the relevant information to deals to make any decision about theasset.

Answer of 3rd Question:

Effects on Financial Statement of Cost model and Revaluation model:

The effects of anincrease in thevalue of thecost of an asset will lead the balances of equity high which is adequate in some cases. Like if the company in need of a high amount of loan,forms any financial institution, the company needs to show high values intheir balance sheet to meet the criteria of borrowing.In some cases, it will mislead the organization to record the assets on revaluation model as the company hasto continue with revaluation model if once itdecides to go with it and will lead to some serious problems inrecording, it will increase the expense which are incurred for revaluation. Most of the expertise,havethe opinion to record the assets on the cost model, they have a grand view that revaluation model misleads the organization to affect its going concerns................

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