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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Alder Co, which uses the IAS 40 fair value model, owns an investment property carried at $4.0m at the start of the year. At the year end its fair value is $4.3m. Costs of $50,000 were incurred during the year on routine repairs. How should Alder report the year's movements?

Alder recognises a $300,000 fair value gain in profit or loss and expenses the $50,000 repairs. Under the IAS 40 fair value model, gains go through profit or loss rather than OCI, routine servicing costs are not capitalised, and no depreciation is charged.

  1. AGain of $300,000 in other comprehensive income; repairs capitalised
  2. BGain of $300,000 in profit or loss; repairs expensed in profit or lossCorrect
  3. CGain of $250,000 in profit or loss; repairs capitalised
  4. DGain of $300,000 in profit or loss; depreciation charged on the $4.3m

Explanation

Under the IAS 40 fair value model, changes in fair value ($4.3m - $4.0m = $0.3m) go to profit or loss. Routine repairs are day-to-day servicing and are expensed. No depreciation is charged under the fair value model. The OCI option confuses this with IAS 16 revaluation.

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