BKAR2023 FINANCIAL ACCOUNTING AND REPORTING II (A192)

MINI CASE 4
INVESTMENT PROPERTY
DUE DATE: 30/4/2020

QUESTION 1

Two pieces of land in Semenyih and Puchong and also an eight-storey office building have been
acquired by Nayland Bhd on 1 July 2017. The cost of Semenyih land, Puchong land and office
building are RM3,500,000, RM4,000,000 and RM5,000,000, respectively. Puchong land was
acquired to construct Nayland’s warehouse while the office building was rented out to its
subsidiary company, Mayland Bhd at market rental rates. However, the management of Nayland
Bhd has not decided whether to use Semenyih land for expansion or sell it later when the price
goes up. It is estimated that the office building will evenly provide benefits to the company over
its useful life of 40 years. Nayland Bhd uses a revaluation model for plant, property and
equipment (PPE) and fair value model for its investment property. Nayland Bhd’s accounting
year ends on 31 December each year. A professional appraiser has assessed the propertie’s
market value for the year end 2017 and 2018, as follows:

Property Fair Value 2017 Fair Value 2018

(RM) (RM)

Semenyih land 3,300,000 2,500,000

Puchong land 4,000,000 4,050,000
Eight-storey office building 5,500,000 5,200,000

On 1 March 2019, Nayland Bhd occupied back the office building as their main office for
company’s operation. However, the building also partially rented out. The floor area rented out
was just a small portion of the overall office-building and its value could not be separately
identified. The fair value of an office building at the commencement date of occupied was
RM5,400,000.

REQUIRED:

(a) Explain which property(ies) can be classified as investment property for Nayland Bhd
according to MFRS 140 Investment Property.

(b) Prepare the related journal entries for Nayland Bhd’s investment property(ies) for the
years 2017, 2018 and 2019.
(c) Nayland’s office building was rented to its subsidiary, Mayland Bhd. Based on the
MFRS 140 Investment Property, advice on the accounting treatment to record this
office building in company’s and group financial statement.
(d) Determine whether there is any transfer of category for investment properties of
Nayland’s Bhd based on the MFRS 140 Investment Property. Provide evidence for
your answer (if any).

QUESTION 2

Tina Aisyah Sdn. Bhd paid RM9,000,000 on 1 January 2016 to purchase a building for capital
appreciation. The fair value of the building on 31 December 2016 and 31 December 2017 were
RM16,000,000 and RM11,000,000, respectively. On 30 June 2018, Tina Aisyah Bhd decided to
use this building as an administrative office. The remaining useful life of the office building on
30 June 2018 is 8 years. The fair value of the building on 30 June 2018 was RM14,000,000.
However, due to financial problem, Tina Aisyah Bhd sold this building on 30 June 2019 for
RM15,500,000. Tina Aisyah Sdn. Bhd adopted fair value model for investment property and
revaluation model for owner occupied property. The straight-line method has been used by Tina
Aisyah Bhd to calculate depreciation for the fixed asset. Tina Aisyah Sdn. Bhd closes its account
on 31 December every year.

REQUIRED:

(a) Prepare all journal entries for the year 2016, 2017, 2018 and 2019.
(b) After initial recognition, MFRS 140 Investment Property requires an entity to choose
either the cost model or fair value model as its accounting policy. Explain these two
models.
(c) Explain the derecognition of investment property.