Question

During the current year ended 31 December 2004, ABU Bhd revised its accounting measurement on investment property from the cost model to the fair value model. The cumulative effect due to the change of measurement of investment property for the prior years cannot be determined. At the beginning of the current year, the carrying amount of the investment property was RM 200 million. The fair value on that date was RM 250 million. At the end of the current financial year, the fair value was determined at RM 300 million. Retained profit b/d as at 1 January 2022 was RM 600 million. (Ignore tax effects) Required:

(a) Explain whether the transaction can be recognized as a change in accounting policy under MFRS 108.
(b) Prepare the adjustment journal entries for the changes in accordance with the relevant standards.
(c) Extracted Statement of Changes in Equity and Statement of Profit or Loss for the year ended 31 December 2004.

Answer 1

Under MFRS 108, the change in measurement of investment property from the cost model to the fair value model can be recognized as a change in accounting policy. The adjustment journal entries would involve debiting/crediting Investment Property and Retained Earnings. Additional information is needed to complete the extracted financial statements.

Step-by-step explanation:

(a) According to MFRS 108, a change in accounting policy is defined as an accounting principle change that has a significant effect on an entity's financial statements. In this case, the change in the measurement of investment property from the cost model to the fair value model can be recognized as a change in accounting policy. The change should be applied retrospectively by adjusting the carrying amount of investment property at the beginning of the current year and recognizing the cumulative effect of the change in retained earnings as at the beginning of the earliest comparative period presented.

(b) The adjustment journal entries to reflect the change in measurement of investment property would be as follows:

1. Debit Investment Property for RM 50 million (RM 250 million fair value - RM 200 million carrying amount)

Credit Retained earnings for RM 50 million

2. Debit Retained earnings for RM 50 million

Credit Investment Property for RM 50 million (RM 300 million fair value - RM 250 million carrying amount)

(c) The extracted Statement of Changes in Equity and Statement of Profit or Loss for the year ended 31 December 2004 would need additional information to be provided in order to complete them accurately.