Reference no: EM132935578
On January 1, Year 1, Holzer Company hired a general contractor to begin construction of a new office building. Holzer negotiated a $900,000, 5 -year, 10% loan on January 1, Year 1, to finance construction. Payments made to the general contractor for the building during Year 1 amount to $1,000,000. Payments are made evenly throughout the year. Construction is completed at the end of Year 1, and Holzer moves in and begins using the building on January 1, Year 2. The building is estimated to have a 40-year life and no residual value. On December 31, Year 3, Holzer Company determines that the market value for the building is $970,000. On December 31, Year 5, the company estimates the market value for the building to be $950,000.
Required:
Problem 1: Use the two alternative methods allowed by IAS 16 with respect to the measurement of PPE subsequent to initial recognition to determine:
a. The carrying amount of the building that would be reported on the balance sheet at the end of Years 1 - 5.
b. The amounts to be reported in net income related to this building for Years 1 - 5. In each case, assume that the building's value in use exceeds the carrying value at the end of each year and therefore impairment is not an issue.
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