Question

ted 27. On January 1, Year 1, Holzer Company hired a general contractor to begin construction of a new office building. Holzer negotiated a $900,000, five-year, 10 percent loan on January 1, Year 1, to finance construction. Payments made to the general contractor for the building during Year 1 amount to $1,000,000. Payments were made evenly throughout the year. Construction is completed at the end of Year 1, and Holzer moves in and begins using the building on January 1, Year 2. The building is estimated to have a 40-year life and no residual value. On December 31, Year 3, Holzer Company determines that the market value for the building is $970,000. 171 International Financial Reporting Standards Part I On December 31, Year 5, the company estimates the market value for the building to be $950,000. Required: Use the two alternative methods allowed by IAS 16 with respect to the mea- surement of property, plant, and equipment subsequent to initial recognition to determine: a. The carrying amount of the building that would be reported on the balance sheet at the end of Years 1-5. b. The amounts to be reported in net income related to this building for Years 1-5 In each case, assume that the building's value in use exceeds its carrying value at the end of each year and therefore impairment is not an issue.

Answer 1

Avswer Contracbor The Hdya Company ined a generd to hegin contyudtion less Asset the brlana sheet at cot On cunelated any acumudated depreedalan ond impaimment losses Holzer negotiated 400000 o Annual intere 900 000x lo. Tnterd to be cofptalized in yean 50 DOo 500 000 X io 90000-5ocoo Zntered expenses

Spenditunes experdidurey Accumulalud duis :S00,000 So0,o00 2 Cost builduig Constouchon Cost Copitaliged interst S0000 PLOO0 OOot 50000 Annuad dupraia 1osO O00 26 250 Bepetaon Exps year o gear 262so ear )26,250 yeas( 26250

26 250 Balae sheet Bridday yeaon ( = d0 Budldng OSo OOO Guildis 056 000 26 250 26 2S0 050O0 O Budiding lo23 750 7 ear (s) Bulding o23 750 Deprisalia 2 6250 -l023 750- 26250) 2.3F50-26250 Buledig 997 S00

year Buildug 97S00 Pepreidion =26,250 -q97500- 26250 =941250 ycar(s Bulding 971250 Depreadlo 26250 971250-26230 q4S, 000 A rnmual interet 2 q0 000 Interad to bCapitedey Tnterest ep 2h000 Contruction Cost 000 000 Captabzed interest- s000 OSO Coo

AnMual depmeadio 26.250 Yecn year2 ya3 ca In Come stelament Pepreaialioi 26.250 26,25o 25 326 25526 Subtotal 25 526 2552 26 250 26, 250 on Reuduat 27500 Revseal Realakoi 27500 Tolal esporie Beabance sheet 26 250 L3150 2S520 leding o os0 oco l023 750t000 u 4 Pepaediad 26 25 25526 25226 26 250 Beldy loS000 2 3 75 70o 91818 losocco -26 250 26250 - 25526- 25 52 s on Revalt Reve Redlute 27 S003 -

Revaluab Cy e 3S523 Buildg Loso0oo ear ) 023 750 year 3j 97,500-27 500 -970 000 gean a50 00 year He Dec 3, ya 3 le a Val builduydetermined 940.00 Nalu the bildior casd =27s00 Recegnize! in yean 3 non the depoecialn ye 25 62 econ

Dec 3 yea) the s Vaua 4 he buileding daenined 5o,000 Velu he bilding inaear Carring 3 05 2 Reunlual ass 27 SOO $3552 Recorgniyed in Come Reasalutn Suplus ishuhod