CFA CFA Level 1 Question of the Week – Financial Reporting and Analysis

Question of the Week – Financial Reporting and Analysis

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    • AdaptPrep
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      Company XYZ purchases land for $5,000,000. XYZ intends to hold the land for a long term (20 years) and rent the land out to generate income. Under IFRS, at which price is the company allowed to use on its financial reports for the value of the land:
      I. $5,000,000
      II. The current market price

      • I only
      • II only
      • Either I or II
    • AdaptPrep
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      The first question you should ask here is the
      classification of land. Is it PPE (Property, Plant, Equipment) or investment
      land? Since it is being used for generating income (rather than for
      operations), it is investment land.

      How does IFRS allow valuation of investment land? Either
      at cost or at market price
      . XYZ must choose a method and be
      consistent with it, but XYZ is allowed to choose either method. Since XYZ is
      holding the land for a long time, they may choose to value it at cost so as to
      not be affected by market volatility.

    • shannondaily
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      Woo! I got it right. 🙂 

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