Question

Street Limited prepares its financial statements to 31 December each year, and at 31 December 2014 the company owned four properties: Bruce, Clarence, Roy and Steve. On 1 January 2013, Street Limited acquired Bruce and Clarence, two sites located in out-of-town shopping centres. Construction on each site commenced on 1 January 2013 and was completed on 31 December 2013. Details of the costs associated with the construction are as follows: Bruce Clarence £'000 £'000 Land 2.000 1.800 Direct materials 1.600 1,400 Direct labour 400 300 Direct overheads 260 240 4.260 3.740 Street Limited financed the construction of Bruce and Clarence by issuing a £10,000,000 zero-coupon bond on 1 January 2013. The bond is redeemable on 31 December 2016 with a one-off payment of £13,605,442. While both properties were brought into use on 1 January 2014, Bruce was retained by Street Limited for its own use whereas Clarence was rented commercially to an unrelated company. Street Limited owns two successful golf courses, Roy and Steve, and the company intends to develop this specialist part of its business. These two courses were professionally valued on 1 January 2014, the details of which are as follows: Historical Cost Historical Cost Net Book Valuurrent Use Value Market Value L'000 £'000 £'000 000 Roy 75,000 45.000 35,000 37.500 Steve 80,000 48.000 56,000 60,000 The buildings element of Roy and Steve represents 50% of both the historical cost and revalued amounts, and their remaining useful economic life at 1 January 2014 was 30 years. It was company policy to record all owned properties at historic cost and to depreciate them over their estimated useful economic life of 50 years on a straight-line basis. However, with effect from 1 January 2014, the directors of Street

Answer 1

Answer: Based on inputs given, Out of 4 properties, 1 is Investment Property , Clarence which is used for renting . Bruce for administrative purpose , Roy and Steve for business purposes.

Zero coupon bond need to be presented as Liabilities at amortised cost.. The working of the same is as follows.

	Inflow	Outflow	Balance	XIRR
01-01-2013	-1,00,00,000		-1,00,00,000	8%
31-12-2013		0
31-12-2014		0	-
31-12-2015		0	-
31-12-2016		1,36,05,442	1,36,05,442

Computation of Interest for 2013 and 2014. For 2013, Interest to be capitalised in proportion to cost of property for Bruce and Clarence and For 2014, to be charged to PL, since asset ready for use.

Year	Opening Balance	Interest	Closing balance
2013	-1,00,00,000	-8,00,110	-1,08,00,110
2014	-1,08,00,110	-8,64,127	-1,16,64,237
2015	-1,16,64,237	-9,33,267	-1,25,97,504
2016	-1,25,97,504	-10,07,938	-1,36,05,442

Presentation in Income statement

Statement of Profit or Loss
Particulars	2013	2014
Depreciation on PPE
Roy	15,00,000	12,50,000
Steve	16,00,000	20,00,000
Bruce		93,721
Depreciation on Investment Property	0	82,281
Interest on Zero coupon Bond		8,64,127

Statement of Other comprehensive Income
Particulars	2013	2014
Items not to be reclassified to PL
Net Revaluation Gain/(loss) on PPE
Loss on Revaluation of Roy		-75,00,000
Gain on Revaluation of Steve		1,20,00,000
		45,00,000

Statement of Financial Position
Particulars	2013	2014
Equity & Liabilities
Equity
Liabilities
Zero Coupon Bond	1,00,00,000	1,08,00,110
Add: Interest accrued	8,00,110	8,64,127
	1,08,00,110	1,16,64,237
Assets
Property, Plant & Equipment
Bruce Building	42,60,000	46,86,058
Add: Interest on Bond	4,26,058
Less: Depreciation		93,721
	46,86,058	45,92,337
Roy Building	7,50,00,000	4,50,00,000
Less Accumulated Dep	3,00,00,000
Less: Revaluation Loss transfer to OCI		75,00,000
Less :Depreciation		12,50,000
	4,50,00,000	3,62,50,000
Steve Building	8,00,00,000	4,80,00,000
Less Accumulated Dep	3,20,00,000
Add: Revaluation Gain transfer to OCI		1,20,00,000
Less :Depreciation		20,00,000
	4,80,00,000	3,40,00,000
Investment Property
Clarence Building	37,40,000	41,14,051
Add: Interest on Bond	3,74,051
Less: Depreciation		82,281
	41,14,051	40,31,770