Question

(v) GHL purchased a factory site in Malaysia on 1 April 2019 with intention for industrial...

(v) GHL purchased a factory site in Malaysia on 1 April 2019 with intention for industrial use. Land prices in the area had increased significantly in the years immediately prior to 31 March 2020. Nearby sites had been acquired and converted into residential use. It is felt that, should the GHL’s site also be converted into residential use, the factory site would have a market value of $27 mil- lion. $1.5 million of costs are estimated to be required to demolish the factory and to obtain plan- ning permission for the conversion. GHL was not intending to convert the site at 1 April 2019 and had not sought planning permission at that date. The current replacement cost and carrying amount of the factory site are correctly calculated as $25.1 million and $28 million respectively as at 31 March 2020 before revaluation. Fanny did not reflect the change in fair value of the factory site even the factory site is measured using the revaluation model under HKAS 16.

What are the adjusting entries

Homework Answers

Answer #1
Fig. in mlns
Carrying value of land 28
Replacement cost 25.1
Market value 27
so, it is revalued at the conservative estimate of lesser of the two--
ie. Replacement cost or market value,
ie. Lesser of the two is $ 25. 1 mln.
So, the adjusting JE for the and will be
to bring down the carrying value in the books,
Account Head Debit Credit
Revaluation adjustment/loss 2.9
Land 2.9
(28-25.1)
$1.5 million of costs--estimated to be required to demolish the factory and to obtain plan- ning permission for the conversion ---will add to the building capital costs , when decided & converted & may not affect the value of the land---to be recorded
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