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Question of the Week - Financial Reporting and Analysis

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited May 2016 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?

Question of the Week - Financial Reporting and Analysis 25 votes

$5,000,000 only
16%
stimchainikanezAlegriatarnaout 4 votes
The current market price only
12%
pabulumshakzisandeep 3 votes
Either $5,000,000 or the current market price
72%
AdaptPrepgoogs1484BeregondPahtsanmdlynch3dmuller27Swatiyadeesh89quest4valuenyang5001vepferreiraaaronpcjblbroughton07sanskriti14Freddieajoysidavannoordsuls 18 votes

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    Either $5,000,000 or the current market price

    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.

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