Economics · IAS 16 and IAS 40 Investment Property
Break Co owns land purchased on 1 January 20X2 for $2 million, initially held for capital appreciation. On 1 July 20X4, the company occupied the land and began construction of its new head office, when its fair value was $2.5 million. Break Co uses the cost model for IAS 16 (Property, Plant and Equipment) and the fair value model for IAS 40 (Investment Property). How should Break Co account for the change in use of the land on 1 July 20X4?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Continue to measure the land at $2 million without any transfer between asset categories.
- 2Transfer the land from property, plant and equipment to investment property. Recognise a gain of $0.5 million in other comprehensive income.
- 3Transfer the land from investment property to property, plant and equipment at its carrying amount of $2 million.
- 4Transfer the land from investment property to property, plant and equipment. Recognise a gain of $0.5 million in the statement of profit or loss.✓
Correct answer
Transfer the land from investment property to property, plant and equipment. Recognise a gain of $0.5 million in the statement of profit or loss.
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