Tutorial Question PPE and Investment Property 26 February 2024

West Gate limited owns two buildings:

 A head office building located in Sibasa; and

 Another office block located in Thohoyandou.

The office building located in Sibasa is used as West gate Limited’s head office. Dineo floods, on 30
June 2016, completely destroyed this building. The building in Sibasa was purchased on 1 January
2016 for

R2 000 000. The building has a total useful life of 10 years and a residual value of nil.

The property in Thohoyandou was leased under an operating lease to a tenant Agape Accountants.
After the floods, West Gate Limited urgently needed new premises for its head office. Since Agape
Accountants was always late in paying their lease rentals, West Gate Limited decided to evict them
and move its head office to this building in Thohoyandou. This eviction and relocation were effective
from 1 July 2016.

 The building in Thohoyandou was purchased on 1 January 2016 for R500 000.
 On 30 June 2016, the fair value of the building in Thohoyandou was R950 000
 There was no change in fair value on 31 December 2016.
 The total useful life was estimated to be 10 years from the date of purchase and the residual
value was estimated to be nil.

West gate Limited uses:

 The cost model to measure its property, plant and equipment and
 The fair value model for its investment properties.

Required:

1. Journalize the above transactions in the books of West Gate Limited for the year ended 31
December 2016.

2. Disclosure in the financial statements of West Gate Limited for the year ended 31
December 2016 so as to comply with IFRS.
Suggestion Solution
1. Journal Entries

Debit Credit
1 January 2016
PPE: Sibasa building: cost (A) 2 000 000
Bank/Liability 2 000 000
Purchase of Sibasa building (owner-occupied)
IP: Thohoyandou building: cost 500 000
Bank/Liability 5 000 000
Purchase of Thohoyandou building (leased to a tenant)
30 June 2016
Depreciation: (Expense) 2 000 000/10 *6/12) 100 000
PPE: Sibasa building: accumulated depreciation 100 000
Depreciation of building (PPE) to date of destruction
Impairment loss (E) 1 900 000
PPE: Sibasa building: accumulated impairment losses 1 900 000
Write-off after Dineo floods
PPE: Sibasa building: accumulated impairment losses 2 000 000
PPE: Sibasa building: cost 2 000 000
Derecognition of Sibasa building after Dineo floods
IP: Thohoyandou: cost (950 000 – 500 000) 450 000
Fair value adjustment to investment property 450 000
Remeasurement of investment property prior to change in
use
PPE: Thohoyandou building: cost 950 000
IP: Thohoyandou building 950 000
Transfer from investment property to PPE
31 December 2016 50 000
Depreciation (E) (950 000/9.5) *6/12 50 000
PPE: Thohoyandou building: accumulated depreciation
Depreciation to year-end Thohoyandou building (PPE)

2. WEST GATE LIMITED

EXTRACT FROM SATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

Profit for the year

Depreciation (30 June 2016) 100 000
Depreciation (31 December 2016) 50 000
Impairment loss 1 900 000
Other comprehensive income
Fair value adjustment 450 000

WEST GATE LIMITED

STATEMENT OF FINACIAL POSITION FOR THE YEAR ENDED 31 DECEMBER

2016

Rand
ASSETS
Non-Current Assets
Property, plant, and equipment (950 000 - 50 000) 900 000