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?

      • $5,000,000 only
      • The current market price only
      • Either $5,000,000 or the current market price
    • 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.

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