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25 November, 22:00

Birken Co. purchased a building for $500,000 in 2016. At the end of 2017, when it had a book value of $450,000, it was appraised for $1,000,000. A potential buyer offered $900,000. Birken rejected the offer. What amount is in Birken's records at the end of 2017 in the Building account

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  1. 26 November, 00:56
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    Under IFRS, the building should be recorded at its historical cost minus its accumulated depreciation which is $450,000.

    Explanation:

    Under IFRS, IAS 16 Property, Plant and Equipment states that asset should be subsequently recorded following one the the following two models:

    + Cost model: The asset is carried at cost less accumulated depreciation and impairment;

    + Revaluation model: The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably.

    With information given in the question, there is lack of information about fair value of the building; that is whether the appraisal is done by the professional, independent appraiser or whether the price offer by potential buyer is the fair price in the market.

    So, with given information, Cost model should be applied and the building should be recorded at its historical cost minus its accumulated depreciation which is $450,000.
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