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Question of the Week - Financial Reporting and Analysis

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited June 2014 in Level 1 Questions
Company XYZ purchases land for $5,000,000. XYZ intends to hold the land for a long term (20 years) and rent the land out to generate income. Under IFRS, at which price is the company allowed to use on its financial reports for the value of the land: I. $5,000,000 II. The current market price

Question of the Week - Financial Reporting and Analysis 36 votes

I only
22%
seanpintoRaghavsriniTannorGoggsLollypollytoonervaamgbattabrahmb2 8 votes
II only
16%
Shashanknvtraderchmpnarcherghateleythendry7ferocious 6 votes
Either I or II
61%
GeorgeKopAdaptPrepRoyDHmelendezjmsatchwellcraigydSharvey518jak5189krishTaTeemosimply_complex2shannondailygoogs1484ThomasWrachelmroverfanclubrdxMargotarhelpaecoffey123 22 votes

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    Either I or II

    The first question you should ask here is the classification of land. Is it PPE (Property, Plant, Equipment) or investment land? Since it is being used for generating income (rather than for operations), it is investment land.

    How does IFRS allow valuation of investment land? Either at cost or at market price. XYZ must choose a method and be consistent with it, but XYZ is allowed to choose either method. Since XYZ is holding the land for a long time, they may choose to value it at cost so as to not be affected by market volatility.

  • shannondailyshannondaily St. Louis, MOPosts: 72 Sr Associate
    Either I or II
    Woo! I got it right. :smile: 

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