Property 1 This property was purchased at a cost of R4 500 000 on 1 January 2019. An upfront payment of R450 000 was made on this date and the remaining R4 050 000 is payable on 31 December 2019. A discount rate of 10% is applicable. The present value factor for R1 at 10% per annum is 0.909. 5% of the property is used by the company as its sales and administration office. This is considered to be an insignificant portion of the property. The remaining 95% is leased to third parties under operating leases. The property cannot be apportioned off and sold separately. Transfer duties of R328 000 plus other abnormal costs of labour amounting to R50 000 were incurred in getting the property ready to be let out to third parties. During the year, rentals of R775 000 were earned and repairs and maintenance expenses of R65 000 were paid. The fair value of the property at year end on 31 December 2019 was R5 400 000. Q.2.1 Determine the cost at initial recognition for Property 1. Q.2.2 If the company chooses to use the fair value model for measurement after recognition for Property 1, record the journal entry that the entity would make at year end, 31 December 2019, related to the carrying value of this property. Show all of your workings. Narrations are not required.
Property 1
This property was purchased at a cost of R4 500 000 on 1 January 2019. An upfront payment of
R450 000 was made on this date and the remaining R4 050 000 is payable on 31 December 2019.
A discount rate of 10% is applicable. The present value factor for R1 at 10% per annum is 0.909.
5% of the property is used by the company as its sales and administration office. This is
considered to be an insignificant portion of the property. The remaining 95% is leased to third
parties under operating leases. The property cannot be apportioned off and sold separately.
Transfer duties of R328 000 plus other abnormal costs of labour amounting to R50 000 were
incurred in getting the property ready to be let out to third parties.
During the year, rentals of R775 000 were earned and repairs and maintenance expenses of
R65 000 were paid.
The fair value of the property at year end on 31 December 2019 was R5 400 000.
Q.2.1 Determine the cost at initial recognition for Property 1.
Q.2.2 If the company chooses to use the fair value model for measurement after recognition for Property 1, record the
Narrations are not required.
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