Tromp Limited is an investment company that purchases buildings and holds them for a number of purposes, such as resale, leasing and its own use. On 1 January 2014, Tromp Limited purchased an old building, Tromp Towers, for R300 000. Conveyancer’s fees amounted to R 20 000. This building is situated in an isolated part of Durban (South Africa) and there is no development anywhere nearby. At the time of purchase, there had been no property transactions in this area for many years and the possibility of leasing the building to tenants was remote. During November 2014, development began of a new industrial park in the area. As a result, the building was able to be leased to tenants involved in the development of the industrial park. Due to the influx of people into the area, the directors decided to paint one side of the building with the corporate logo of Tromp Limited. This building has never had an air-conditioning system. After numerous complaints from tenants about not being able to tolerate the Durban heat, Tromp Limited decided to upgrade the building by installing a ducted air-conditioning system on 1 December 2014. The cost of installation included the following: Adjustments to the structure of the building R30 000 Painting R50 000 Air-conditioning system R200 000 Installation costs R50 000 The ducted air-conditioning system has a 10-year life and a nil residual value. As a result of the new industrial park, there was suddenly a demand for properties in the area and fair value of Tromp Towers was able to be determined on 31 December 2014 at R420 000. Tromp Limited would like to measure this investment property at fair value now that fair values have become available. The building has a 10-year useful life and an estimated residual value of C50 000. Tromp Limited also holds other investment property, which is measured under the fair value model. The fair value of this other investment property is as follows: 1 January 2014 R1 000 000 R1 250 000 on R31 December 2014. Required Prepare the accounting policy for investment property and the investment property note for the year-ended 31 December 2014
Tromp Limited is an investment company that purchases buildings and holds them for a number of purposes, such as resale, leasing and its own use.
On 1 January 2014, Tromp Limited purchased an old building, Tromp Towers, for R300 000. Conveyancer’s fees amounted to R 20 000.
This building is situated in an isolated part of Durban (South Africa) and there is no development anywhere nearby. At the time of purchase, there had been no property transactions in this area for many years and the possibility of leasing the building to tenants was remote.
During November 2014, development began of a new industrial park in the area. As a result, the building was able to be leased to tenants involved in the development of the industrial park. Due to the influx of people into the area, the directors decided to paint one side of the building with the corporate logo of Tromp Limited.
This building has never had an air-conditioning system. After numerous complaints from tenants about not being able to tolerate the Durban heat, Tromp Limited decided to upgrade the building by installing a ducted air-conditioning system on 1 December 2014.
The cost of installation included the following:
Adjustments to the structure of the building R30 000
Painting R50 000
Air-conditioning system R200 000
Installation costs R50 000
The ducted air-conditioning system has a 10-year life and a nil residual value. As a result of the new industrial park, there was suddenly a demand for properties in the area and fair value of Tromp Towers was able to be determined on 31 December 2014 at R420 000. Tromp Limited would like to measure this investment property at fair value now that fair values have become available.
The building has a 10-year useful life and an estimated residual value of C50 000. Tromp Limited also holds other investment property, which is measured under the fair value model. The fair value of this other investment property is as follows:
1 January 2014 R1 000 000 R1 250 000 on R31 December 2014.
Required
Prepare the accounting policy for investment property and the investment property note for the year-ended 31 December 2014
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