A business owns a building which it has been using as a head office. In order to reduce costs, on 30 June 2019 it moved its head office functions to one of its production centres and is now letting out its head office. Company policy is to use the fair value model for investment property.
The building had an original cost on 1 January 2010 of RM250,000 and was being depreciated over 50 years. At 30 June 2019 its fair value was judged to be RM350,000.
Required:
How will this appear in the financial statements at 31 December 2019?
At 31 December 2019, the building will appear in the financial statements as an investment property under the fair value model.
The carrying amount of the building as of 30 June 2019 was RM250,000, but since it was reclassified as an investment property, it will be remeasured at its fair value of RM350,000 at that date.
At 31 December 2019, any changes in the fair value of the investment property will be recognized in the profit or loss for the year, under the fair value model. The carrying amount of the building will still be RM350,000, but any changes in fair value will affect the profit or loss.