Investment property and rent received in advance
A company owns land with an estimated value of £10m as at 1 January 2011 that is accounted for as investment property. The company applies the fair value option in IAS 40 and has a reporting period ended on 31 December 2011.
The land was not let until, on 30 December 2011, a lease of 50 years was granted for consideration of £9.5m. The lease is considered to be an operating lease. No rental income was recognised in 2011 as it was considered immaterial. An external valuer estimated that, after the grant of the 50 year lease, the fair value of the company”s interest in the land as at 31 December 2011 was £1m. As at 31 December 2012 the external valuer estimated the market value of the interest in the property was £1.2m.
The resultant accounting entries are summarised below:
Extracts from the ledgers for the year ended 31 December 2011
|
As at |
Journal |
(2) |
Journal |
As at |
|
|
Investment property |
10.0 |
— |
(9.) |
10. |
11. |
|
Cash |
— |
9..) |
— |
— |
10. |
|
Deferred Income |
— |
(10.) |
— |
— |
(10.) |
|
Net Assets |
10.0 |
— |
(9.) |
10. |
11. |
|
Share capital |
10.0 |
— |
— |
— |
10.0 |
|
Retained profit |
— |
— |
(9.) |
10. |
0.5 |
|
Total Equity |
10.0 |
— |
(9.) |
10. |
11. |
Journals:
(1) Issue of lease (£9.5m received on issue of lease)
(2) Write down investment property to £1m external valuation
(3) Write up book value of property by the amount of unamortised deferred revenue in the balance sheet