Problems Problem 5.1 Bonnie Fantastic Inc owns freehold land for its operation o

Question

Problems Problem 5.1 Bonnie Fantastic Inc owns freehold land for its operation of an entertainment as decided to cease to operate Park entertainment park itselí, but seek to rent out the whole park to another operator Re the will only charge rent on the park and royalty fee on the use of is park name and br The managing director, Bonnie Hung is drafting a proposal to cease and solicit t Because of the change in strategic focus, Bonnie h tend er offers for the park operation. Bonnie Hung considers that the company has changed usage of the land and the land should be transferred as an investment marked up to the fair value, around 50% higher than t property and he current carrying amount. Discuss the arguments of Bonnie Hung and suggest the proper accounting tr on the land and the park.

Explanation / Answer

Accounting treatment : In usual terms land should be valued at historical cost but in case if an organisation as a policy of using land as an investement property then it should be valued at fair value.

In the present case Bonnie Fantastic Inc. using land as an investement property. So, it should be valued at fair value which is 50% higher than the current carrying amount in the present case.

So, the argument of Bonnie hung is correct.

Park should also be valued at same cost.

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