Questions and Answers
What is the current carrying amount of the property as reported by Gamma?
What accounting model has Gamma chosen for the investment property?
What is the estimated resale value of the property after selling costs?
If the restructuring occurs, what is the estimated present value of future net cash inflows from the property?
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What factor has influenced the reduction in the rental price for the new tenants?
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What is the present value of all future rental payments expected from the property?
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Which of the following statements about the property is accurate?
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Why is the finance director satisfied with the current carrying amount of the property?
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Study Notes
Property Valuation and Accounting Treatment
- Gamma applies the cost model to its investment property, maintaining its current carrying amount of $1.2 million.
- Recent lease negotiations have led to reduced rental charges due to market conditions, affecting the property’s resale value.
- The current estimated resale value of the property, inclusive of selling costs, is $900,000.
- Future rental income, based on a forecast of continuing leases, has a present value of approximately $1 million.
- Potential restructuring could change the use of the property, which might increase its value significantly.
- If restructured, the expected present value of future net cash inflows could be around $1.3 million.
Financial Statement Considerations
- The property’s carrying amount remains justified at $1.2 million, as estimated values reflect potential future scenarios.
- Restructuring plans, even if not finalized, indicate a possible upward adjustment in property valuation based on alternative uses.
- Financial statements for the year ended 30 September 20X5 should reflect the investment property at its carrying amount, while also disclosing its risk and potential future value fluctuations.
- Significant judgments related to rental agreements and restructuring plans need to be clearly communicated in the financial notes for clarity and transparency.
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Description
This quiz dives into essential concepts of property valuation, focusing on accounting treatments, current market conditions, and potential financial impacts. It covers the effects of lease negotiations, estimated resale values, and the implications of restructuring on property worth. Test your understanding of these critical financial principles.
