IFRS 13 · Case studies (Step 3 of 5)
Case study
Sagrafo Industries (fictitious entity) runs a metalworking shop at Valmont on land with a building, accounted for under the revaluation model, and an installed handling line. At the 31 December 20X5 year-end, the valuation committee must measure the fair value of the site and of the line; management considers the current use optimal, but an investor is thinking of a logistics warehouse.
Your assignment
Determine the admissible uses; compute the expected exit price of the converted site and its present value; identify the missing information and justify the indication retained; compute the net value under each use and the value under the highest and best use; measure the handling line under the appropriate valuation premise; record the revaluation of the site and present its effect; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
5 documents: open each one to read it.
Document 1Extract
Fixed asset register of Sagrafo Industries: Valmont site, land and building (unit of account: the land and building together); current use: metalworking shop; revaluation model; carrying amount before revaluation 4,950,000 EUR; revaluation difference proposed 250,000 EUR, to be checked.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Carrying amount of land and building before revaluation | €4,950,000.00 | |
| Revaluation difference proposed for the site | €250,000.00 | |
| Market value under the workshop use (current) | €4,800,000.00 | |
| Conversion costs of the workshop use | €0.00 | |
| Conversion costs into a logistics warehouse | €950,000.00 | |
| Market value under the housing use | €9,000,000.00 | |
| Indication of the market approach (adjusted comparable transactions) for the converted site | €6,150,000.00 | |
| Exit price in 2 years: high scenario | €7,200,000.00 | |
| Probability of the high scenario | 50% | |
| Exit price in 2 years: central scenario | €6,600,000.00 | |
| Probability of the central scenario | 30% | |
| Exit price in 2 years: low scenario | €5,400,000.00 | |
| Probability of the low scenario | 20% | |
| Discount rate (risk-free rate adjusted for a risk premium) | 4% | |
| Number of discounting periods | 2 years | |
| Value of the complete converted logistics centre (land, building and line) | €6,850,000.00 | |
| Value of the handling line sold on its own | €260,000.00 | |
| Budget 20X6 for workshop upkeep | €120,000.00 |
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.
Fixed asset register
Study of the uses of the site
Valuation of the converted site
Note on the handling line
Upkeep budget
11 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Which uses are physically possible, legally permitted and financially feasible?
Task 2Calculation
Compute the expected exit price of the converted site.
Part 1 · Calculation
Compute the expected exit price of the converted site.
Task 3Calculation
Discount it at the rate of the internal note.
Part 1 · Calculation
Discount it at the rate of the internal note.
Task 4Missing information
What information is missing to support the income approach?
Task 5Professional judgement
Which indication should be retained for the value of the warehouse use? Justify.
Task 6Calculation
Compute the net value under each use.
Part 1 · Calculation
Compute the net value under each use.
Result: Net value under the logistics warehouse use
Task 7Calculation
What is the value under the highest and best use?
Part 1 · Calculation
What is the value under the highest and best use?
Task 8Calculation
What is the value of the handling line in combination?
Part 1 · Calculation
What is the value of the handling line in combination?
Task 9Journal entries
Record the revaluation of the site.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 10Effects on the financial statements
What is its effect on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 11Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references