Cost at initial recognition

Learning objectives

• Determine the initial cost of an acquired investment property (purchase price and directly attributable expenditure).L2, L3
• Calculate, from the case data, the amount relating to the cost at initial recognition and justify the basis of calculation.L2, L3
• Record the entry relating to the cost at initial recognition and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §20An owned investment property is measured initially at cost, including transaction costs (right-of-use asset: para. 29A, cross-reference to IFRS 16).
• IAS 40 §21Cost of a purchased property: purchase price and any directly attributable expenditure (professional fees for legal services, property transfer taxes and other transaction costs).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Falvik acquires an office building that it intends to lease. Purchase price: {purchase_price}. It also pays {transfer_taxes} of property transfer taxes and {legal_fees} of legal fees, directly attributable to the acquisition (case data). Calculate the initial cost of the investment property.L2
• Gorvane buys a plot of land to hold for long-term capital appreciation. The contract sets the price at {land_price}. Gorvane also pays {notary_fees} of notary fees, {registration_duties} of registration duties and {agent_commission} of agency commission, all directly linked to this acquisition. At what cost is the land initially recognised?L2
• Halvén acquires a building that it will hold to earn rentals. The purchase price of {purchase_price} is due to the seller within 30 days. It paid {direct_costs} in cash for directly attributable costs. Record the initial recognition entry.L3