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Calculate the cost of the property on initial recognition

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Reference no: EM132758869

On 1 January 2019, Ilham Bhd purchased a landed property at a cost of RM1,750,000. The building is rented out to a tenant. Ilham Bhd also incurs the following costs in connection with the purchase of the property:

Legal and agency fees = RM52,500
Renovation for the construction of a new room in the property = RM65,000
Cleaning services annual fee = RM5,000
Administrative expenses = RM1,000
TOTAL = RM23,500

  • The property is classified as investment property and accounted for under the fair value model. At 31 December of 2019, the market value of the investment property is RM2,750,000. At 31 June 2020, the property was sold to the existing tenant for a consideration of RM2,870,000.

Required:

Problem i. Calculate the cost of the property on initial recognition and explain why some of the items mentioned above are not capitalized and explain how they should be recognised instead

Problem ii. Calculate the gain or loss on disposal and prepare the journal entry for the disposal.

Reference no: EM132758869

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