IAS 8 Class example 1: Solution

Calculations:
31 Dec 2021 31 Dec 2020 31 Dec 2019
Fair value model (New) 2 900 000 2 600 000 2 200 000
Cost model (Old) 1 925 000 1 950 000 1 975 000
Difference (Cumulative effect on profit) 975 000 650 000 225 000
Fair value adjustments 900 000 600 000 200 000
Adjustments to accumulated depreciation 75 000 50 000 25 000

Effect on yearly profit 325 000 425 000 225 000

Fair value adjustments 300 000 400 000 200 000
Adjustments to depreciation 25 000 25 000 25 000

Part A
Debit Credit
Investment property (SFP) 900 000
Accumulated depreciation (SFP) 75 000
Depreciation (P/L) 25 000
Fair value adjustment (P/L) 300 000
Retained earnings (at 31 December 2020) (SCE) 650 000
Part B
[Extract from the] Statement of profit or loss and other comprehensive income
For the year ending 31 December 2021
2021 2020
R R
Fair value adjustment gain 300 000 400 000
Part C
[Extract from the] Statement of financial poition
As at 31 December 2021
2021 2020 2019
R R R
ASSETS
Non-current assets
Investment property 2 900 000 2 600 000 2 200 000
Part D
[Extract from the] Notes to the annual financial statements
For the year ending 31 December 2021
Note 5: Investment property
2021 2020 2019
R R R
Opening balance at 1 Jan 2 600 000 2 200 000 -
Additions - - 2 000 000
Fair value adjustment 300 000 400 000 200 000
Closing balance 31 Dec 2 900 000 2 600 000 2 200 000
Note 6: Change in accounting policy
The company changed its accounting policy for investment property from the cost model to the fair value model. This was
done to reflect the effect of changing prices in the property market on the financial results of the company. The change in
accounting policy has been accounted for retrospectively and the comparative amounts for 2020 have been restated. The
opening balance of retained earnings previously reported has been increased by R225 000, which is the amount of the
adjustment relating to periods prior to 2020. The effect of the change in accounting policy is summarized as follows:
2021 2020
R R
Effect of change on profits:
Increase in fair value adjustment gain 300 000 400 000
Decrease in depreciation expense 25 000 25 000
Increase in profits 325 000 425 000
Increase in retained earnings previously reported 650 000 225 000
Increase in retained earning closing balance 975 000 650 000

Effect of change on net assets

Increase in investment property 900 000 600 000
Decrease in accumulated depreciation 75 000 50 000
Increase in net assets 975 000 650 000