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Professional fileIAS 40L4 · Expert

File of an investment property portfolio: classification, measurement, transfers and disclosures

12 documents20 tasks≈ 300 min
0 / 31 items completed
Standards
IAS 40 — Investment Property
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Groupe Valmont (fictitious entities) comprises two companies that each publish IFRS financial statements: Valmont Investissement SA, which applies the fair value model to its investment property, and Valmont Résidences SA, which applies the cost model. For the 31 December 20X5 year-end, you prepare the portfolio file: classification of two properties, acquisition with deferred payment, fair value changes, two situations of change in use, a disposal, the depreciation of a property at cost and the disclosures. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Build the file: frame the models by company; compute the use and services shares and judge the classification of the two properties; determine the initial cost of the property acquired with deferred payment; compute the fair value changes; judge the two situations of change in use and measure the transfer; compute the gain on disposal; reconcile the portfolio; depreciate the property at cost; record the transactions (case data) and present their effect; prepare the disclosures; conclude.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

12 documents: open each one to read it.

Document 1Memo

Engagement letter

Engagement letter of the file: two companies of the group each publish IFRS financial statements at 31 December 20X5 and each choose their policy, under the teaching assumption of the case. Valmont Investissement SA applies the fair value model to all its investment property; Valmont Résidences SA applies the cost model to all of its own. The file deals with the classification of two properties, an acquisition, fair value changes, two situations of change in use, a disposal, a property at cost and the disclosures.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Total area of M1 (m²)2,500 units
Area used by the company in M1 (m²)150 units
Annual income from the services of M2€120,000.00
Total annual income of M2€1,500,000.00
Agreed price of N, payable in 2 years€1,102,500.00
Rate of the seller's credit for N5%
Number of credit periods for N2 years
Costs incurred other than the price for N€70,000.00
Start-up costs and initial losses of N€20,000.00
Interest expense 20X5 of N (credit schedule)€50,000.00
Opening carrying amount of P€4,000,000.00
Appraisal value of P at the closing date€4,300,000.00
Opening carrying amount of Q€3,000,000.00
Appraisal value of Q at the closing date€2,900,000.00
Carrying amount of the portfolio at the opening date€12,000,000.00
Carrying amount of the portfolio reported at the closing date€13,950,000.00
Cost of property T€1,300,000.00
Accumulated depreciation of T at the date of change€400,000.00
Carrying amount of T before transfer€900,000.00
Fair value of T at the date of change in use€1,500,000.00
Carrying amount of land U€500,000.00
Carrying amount of S at the date of disposal€800,000.00
Net disposal proceeds of S€880,000.00
Cost of property V€2,000,000.00
Estimated residual value of V€200,000.00
Useful life of V30 years
Accumulated depreciation of V at the closing date€240,000.00
Fair value of V to be disclosed in the notes€2,100,000.00
Training budget 20X6€150,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort12

  • Engagement letter

  • Property M1

  • Property M2

  • Property N acquired with deferred payment

  • Appraisals of properties P and Q

  • Portfolio register

  • Property T

  • Property U

  • Disposal of property S

  • Property V under the cost model

  • Reply from the legal department

  • Training budget

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Frame the file: companies, models and transactions of the period.

      2. Task 2Analysis

        Compute the occupied share of M1 and the share of services of M2.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the occupied share of M1 and the share of services of M2.

        1. %
        2. %

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Share of services in the income of M2 (in %)

      3. Task 3Missing information

        What information is missing to classify M1 and measure the transfer of T?

      4. Task 4Professional judgement

        Classify M1. Justify.

      5. Task 5Professional judgement

        Classify M2. Justify.

      6. Task 6Professional judgement

        Which model does each company apply? Justify.

      7. Task 7Calculation

        Compute the cash price equivalent of the price of N.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the cash price equivalent of the price of N.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Calculation

        Compute the capitalisable costs of N.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the capitalisable costs of N.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Calculation

        Compute the initial cost of N.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the initial cost of N.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Calculation

        Compute the fair value changes of P and Q.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the fair value changes of P and Q.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Fair value loss of Q

      11. Task 11Professional judgement

        Do T and U give rise to a transfer? Justify.

      12. Task 12Calculation

        Compute the transfer difference of T.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the transfer difference of T.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Calculation

        Compute the gain or loss on disposal of S.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the gain or loss on disposal of S.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Calculation

        Reconcile the carrying amount of the portfolio of Valmont Investissement.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Reconcile the carrying amount of the portfolio of Valmont Investissement.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Reconciliation difference: reported value − rebuilt value

      15. Task 15Calculation

        Compute the annual charge of V.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the annual charge of V.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      16. Task 16Calculation

        Compute the carrying amount of V.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the carrying amount of V.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      17. Task 17Journal entries

        Record the acquisition of N and its 20X5 interest, the changes of P and Q, the transfer of T, the disposal of S and the depreciation of V.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 3 · Journal entry · Journal entries

        Entry 3 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 4 · Journal entry · Journal entries

        Entry 4 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 5 · Journal entry · Journal entries

        Entry 5 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 6 · Journal entry · Journal entries

        Entry 6 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 7 · Journal entry · Journal entries

        Entry 7 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 8 · Journal entry · Journal entries

        Entry 8 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 9 · Journal entry · Journal entries

        Entry 9 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      18. Task 18Effects on the financial statements

        What is their effect on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      19. Task 19Analysis

        Prepare the disclosures: model, classification criteria, reconciliation and cost model information.

      20. Task 20Conclusion

        Write the conclusion of the file.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedThe portfolio reconciliation does not detail the transfers
      • BlockingResolvedThe allocation of the difference of T to other comprehensive income is not justified
      • Non-blockingOpenThe reconciliation note is to be completed with the breakdown of changes

      Information requests

      • ObtainedRequest for evidence of the inseparability of the occupied floor
      • Assumption documentedRequest for the date of the appraisal of T

      Completion checklist

      • Framework and models documentedDone
      • Classifications and judgements justifiedDone
      • Entries and effects on the financial statementsDone
      • Calculations and reconciliations closedDone
      • Carrying amount reconciliation noteTo review
      • Disclosures linked to a first applicationNot applicable

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 31).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 40 §5
      • IAS 40 §7
      • IAS 40 §10
      • IAS 40 §11
      • IAS 40 §13
      • IAS 40 §20
      • IAS 40 §21
      • IAS 40 §30
      • IAS 40 §33
      • IAS 40 §35
      • IAS 40 §57
      • IAS 40 §60
      • IAS 40 §61
      • IAS 40 §62
      • IAS 40 §63
      • IAS 40 §69
      • IAS 40 §70
      • IAS 40 §76
      • IAS 40 §77