Problem 10-12 Date Account Titles and Explanation Debit Credit SHOW LIST OF ACCO
ID: 2547381 • Letter: P
Question
Problem 10-12
Date
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
Date
Account Titles and Explanation
Debit
Credit
Mar. 1, 2017
Problem 10-12
On March 1, 2017, Novak Corp. acquired a 10-unit residential complex for $1,274,880, paid in cash. An independent appraiser determined that 74% of the total purchase price should be allocated to buildings, with the remainder allocated to land. On the date of acquisition, the estimated useful life of the building was 26 years, with estimated residual value of $324,540. Novak estimates that straight-line depreciation would best reflect the pattern of benefits to be received from the building. Fair value of the complex, as assessed by an independent appraiser on each date, is as follows: Date Fair Value December 31, 2017 $1,321,550 December 31, 2018 $1,254,660 December 31, 2019 $1,222,950The complex qualifies as an investment property under IAS 40 Investment Property. Novak has a December 31 year end.
Explanation / Answer
1. Fair Value method
Fair Value Method
Date
Particulars
Debit
Credit
Mar 1
Land (1274880 x 26%)
Building (1274880 x 74%)
To Cash
(Being Complex Purchased)
331468.8
943,411.2
1,274,880
Dec 31 2017
Land (46670 x 26%)
Building (46670 x 74%)
TO Gain on fair Value
(1321550 – 1274880) = 46670
12134.2
34535.8
46670
Dec 31 2018
Loss on Fair Value
TO Land (66890 x 26%)
TO Building (66890 x 74%)
(1254660 - 1321550) = 66890
66890
17391.4
49498.6
Dec 31 2019
Loss on Fair Value
TO Land (31710 x 26%)
TO Building (31710 x 74%)
(1222950 - 1254660) = 31710
31710
8244.60
23465.40
NOTE: Under Fair Value Method, investment Properties are only revalued but never depreciated.
2. Cost Method
Date
Particulars
Debit
Credit
Mar 1
Land (1274880 x 26%)
Building (1274880 x 74%)
To Cash
(Being Complex Purchased)
331468.8
943,411.2
1,274,880
Dec 31 2017
Depreciation
To Accumulated Depreciation
(943411.2 / 26 = 36285 / 12 x 10 = 30237.50
30237.5
30237.5
Dec 31 2018
Depreciation
To Accumulated Depreciation
(943411.20 / 26 = 36285)
36285
36285
Dec 31 2019
Depreciation
To Accumulated Depreciation
(943411.20 / 26 = 36285)
36285
36285
NOTE: Land is never depreciated in books.
Date
Particulars
Debit
Credit
Mar 1
Land (1274880 x 26%)
Building (1274880 x 74%)
To Cash
(Being Complex Purchased)
331468.8
943,411.2
1,274,880
Dec 31 2017
Land (46670 x 26%)
Building (46670 x 74%)
TO Gain on fair Value
(1321550 – 1274880) = 46670
12134.2
34535.8
46670
Dec 31 2018
Loss on Fair Value
TO Land (66890 x 26%)
TO Building (66890 x 74%)
(1254660 - 1321550) = 66890
66890
17391.4
49498.6
Dec 31 2019
Loss on Fair Value
TO Land (31710 x 26%)
TO Building (31710 x 74%)
(1222950 - 1254660) = 31710
31710
8244.60
23465.40
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