There are different accounting standards that have been introduced by the respectable bodies in order to make the accounting process of the assets convenient. In this paper, a company name, Empire Real Estate Investment Trust needs financial advice regarding its matter of office building in Central London. The paper is divided into four different parts in which four different situations are provided and the treatment of which is elaborated under two accounting standards that is IAS 40 and IAS 16. The rent, use of building for office purpose, and profit and loss from the sale of the building is explained in this paper in the context of both IAS 16 and IAS 40.
a) Treatment of Building under IAS 40
It is found that there are various financial standards that are impose by the higher regulating authorities such as IASB and IFRS in order to protect the precious resources of stakeholders and shareholders while financing in different organisations. However, the basic purpose of IAS 40 is to propose the accounting treatment for investment property and related revelation requirements. Moreover, this standard shall be smeared in the acknowledgement, measurement, and revelation of investment property. In addition, this standard relates to the measurement in a lessee’s financial statements of speculation property interests detained under a lease accounted for as a economics lease and to the valuation in a lessor’s financial statements of investment property offered to a renter under an operating rent (Alexander, et al., 2007; Lorenz, 2003). In this considered case, the top officials of Empire Real Estate must be well aware of regarding the accounting treatment of renting the building to third party for the reason that as per IAS 40 it should be treated as an investment property. …show more content…
Moreover, it is imperative from the prospect of Empire Real Estate that they should consider all-important factor at the time of renting their building for the reason that they have to charge it is an investment property in their financial statements (Rathore, 2008). It is noted that due to the increasing level of risk of deceiving stakeholders and other financers, the accounting bodies are quite keen to impose strict rules and regulations in order to restrict organisations to show all their income and expenditure as per standard. Furthermore, with the help of strict rules & regulations they are able to minimise the risk of cheating and assist the external users to know the actual financial position of an association appropriately. It is assumed that in the forthcoming years the value of property will be rises sharply that is a good sign from an organisational prospect for the reason that they are able to get the greater benefit from their resources (Greuning & Koen, 2011; Greuning, et al., 2011). b) Treatment of Building under IAS 16 The building is used by the company as office accommodation due to which it would be treated under IAS 16. This standard states that the cost of the property, plant, and equipment should be treated as assets in some certain conditions, which are as follows: • If it is expected that the future economic benefits linked to the item would flow to the entity • If the cost of the item can be reliably measured (Davis, 2011; Alexander & Archer, 2008) The office buildings must be dealt with in accounts of the 31 December 2015 and the subsequent years under the principles of IAS 16. Although the building is used as an office accommodation for Real Estate Investment Trust, it is considered as relevant to be treated as asset because it would give future economic benefit that will flow to the entity. Moreover, the cost of the building is also measurable, due to which it would be provided in the section of assets in accounts. In addition to this, it would be treated as …show more content…
The property prices are expected to rise in next few years, which make it important for the company to consider revaluation model. Under this model, the asset is carried at a revalued amount, which is regarded as its fairer value at the date of revaluation from which depreciation of the building is then subtracted so that fair value can be measured reliably. This means that in the accounts of the December 2015 and the subsequent years, the cost of the asset would be treated as revaluated amount by considering revaluation model of IAS 16 (Alexander & Archer, 2008; Greuning & Koen,
a) Treatment of Building under IAS 40
It is found that there are various financial standards that are impose by the higher regulating authorities such as IASB and IFRS in order to protect the precious resources of stakeholders and shareholders while financing in different organisations. However, the basic purpose of IAS 40 is to propose the accounting treatment for investment property and related revelation requirements. Moreover, this standard shall be smeared in the acknowledgement, measurement, and revelation of investment property. In addition, this standard relates to the measurement in a lessee’s financial statements of speculation property interests detained under a lease accounted for as a economics lease and to the valuation in a lessor’s financial statements of investment property offered to a renter under an operating rent (Alexander, et al., 2007; Lorenz, 2003). In this considered case, the top officials of Empire Real Estate must be well aware of regarding the accounting treatment of renting the building to third party for the reason that as per IAS 40 it should be treated as an investment property. …show more content…
Moreover, it is imperative from the prospect of Empire Real Estate that they should consider all-important factor at the time of renting their building for the reason that they have to charge it is an investment property in their financial statements (Rathore, 2008). It is noted that due to the increasing level of risk of deceiving stakeholders and other financers, the accounting bodies are quite keen to impose strict rules and regulations in order to restrict organisations to show all their income and expenditure as per standard. Furthermore, with the help of strict rules & regulations they are able to minimise the risk of cheating and assist the external users to know the actual financial position of an association appropriately. It is assumed that in the forthcoming years the value of property will be rises sharply that is a good sign from an organisational prospect for the reason that they are able to get the greater benefit from their resources (Greuning & Koen, 2011; Greuning, et al., 2011). b) Treatment of Building under IAS 16 The building is used by the company as office accommodation due to which it would be treated under IAS 16. This standard states that the cost of the property, plant, and equipment should be treated as assets in some certain conditions, which are as follows: • If it is expected that the future economic benefits linked to the item would flow to the entity • If the cost of the item can be reliably measured (Davis, 2011; Alexander & Archer, 2008) The office buildings must be dealt with in accounts of the 31 December 2015 and the subsequent years under the principles of IAS 16. Although the building is used as an office accommodation for Real Estate Investment Trust, it is considered as relevant to be treated as asset because it would give future economic benefit that will flow to the entity. Moreover, the cost of the building is also measurable, due to which it would be provided in the section of assets in accounts. In addition to this, it would be treated as …show more content…
The property prices are expected to rise in next few years, which make it important for the company to consider revaluation model. Under this model, the asset is carried at a revalued amount, which is regarded as its fairer value at the date of revaluation from which depreciation of the building is then subtracted so that fair value can be measured reliably. This means that in the accounts of the December 2015 and the subsequent years, the cost of the asset would be treated as revaluated amount by considering revaluation model of IAS 16 (Alexander & Archer, 2008; Greuning & Koen,