1.2)KK Limited owns a property that is used as its head office in Pretoria. On 1st January 2020, itscarrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, thebusiness recognized cheaper premises found for use as the head office. It was therefore decidedto lease the property under an operating lease. The property was valued by a qualifiedprofessional who assessed the property’s value as R21 million on 1st July and R21.6 million on31st December 2020. Explain the accounting treatment of the property in the financialstatements for the year ended 31st December 2020. Income statement already included below...SOP requiredIncome statement:Calculation of carrying amount of property as on 1st July:- ParticularamountCarrying amount as on 1st July$20 millionRemaining life20 yearsDepreciation ($20/20 years)1 million per year Depreciation from 1st January to 1st July: Depreciation for 6 month0.50 millionCarrying value of property as on 1st July ( $20 million-0.5 million)19.5 million Accounting treatment of revaluation of property: ParticularamountIncrease in value on revaluation (fair value on revaluation-carrying value as on date) ($21-19.5 million)$1.5 millionAccounting treatment of property as on 31st December:- ParticularamountFair value of property on 31december21.6 millionCarrying amount of asset as on 31st December (value as on 1st July-depreciation from July to December) ($21 million-0.5 million)$20.5 million Calculation of revaluation surplus: Fair value on date- carrying value on date ($21.6 million-20.5 million)$1.1. million

Assets are revalued at the end of the reporting period to calculate any revaluation gain or…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1.2)KK Limited owns a property that is used as its head office in Pretoria. On 1
st January 2020, its
carrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, the
business recognized cheaper premises found for use as the head office. It was therefore decided
to lease the property under an operating lease. The property was valued by a qualified
professional who assessed the property’s value as R21 million on 1st July and R21.6 million on
31st December 2020. Explain the accounting treatment of the property in the financial
statements for the year ended 31st December 2020. Income statement already included below...SOP required

Income statement:

Calculation of carrying amount of property as on 1st July:-

Particular	amount
Carrying amount as on 1st July	$20 million
Remaining life	20 years
Depreciation ($20/20 years)	1 million per year

Depreciation from 1st January to 1st July:
Depreciation for 6 month	0.50 million
Carrying value of property as on 1st July ( $20 million-0.5 million)	19.5 million

Accounting treatment of revaluation of property:

Particular	amount
Increase in value on revaluation (fair value on revaluation-carrying value as on date) ($21-19.5 million)	$1.5 million

Accounting treatment of property as on 31st December:-

Particular	amount
Fair value of property on 31december	21.6 million
Carrying amount of asset as on 31st December (value as on 1st July-depreciation from July to December) ($21 million-0.5 million)	$20.5 million

Calculation of revaluation surplus:
Fair value on date- carrying value on date ($21.6 million-20.5 million)	$1.1. million

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