INTERMEDIATE ACCOUNTING TUTORIAL 10

INVESTMENT PROPERTY & NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED
OPERATIONS

PROBLEM 1
PT XYZ has four properties in Indonesia and overseas and uses them to earn rental. Except for
Property D, which is owned by PT XYZ, Properties A and B are held by PT XYZ under finance leases
while Property C is held under operating lease. Evaluate the accounting implication of IAS 40/PSAK
13 about Investment Property on PT XYZs properties!

Answer:
Property A, B, and D meets the definition of investment property under IAS 40/PSAK 13 and PT XYZ
must use IAS 40/PSAK 13 to account for it. Property D is owned by PT XYZ, while Property A and B are
held by PT XYZ under finance lease.

Property C do not meet such definition since it is neither owned nor held by PT XYZ under a finance
lease. However, PT XYZ has a classification alternative under IAS 40/PSAK 13 to choose to account
Property C as investment property. In consequence, PT XYZ can consider the following alternatives:
If Property C is accounted for under IAS 40/PSAK 13 as investment property, PT XYZ will be
required to use the fair value model in accordance with IAS 40/PSAK 13 to account for all
properties classified as investment property, including Property A, B, C, and D.
If Property C is not classified as investment property, PT XYZ will be required to account for
Property C as a lease under IAS 17/PSAK 30 and will choose between cost model and fair value
model in accordance with IAS 40/PSAK 13 to account for Property A, B, and D.

PROBLEM 2
PT Hotel Cahaya treats its hotel properties as investment properties. The hotel is owned and
managed by PT Hotel Cahaya. Evaluate the accounting treatment on PT Hotel Cahayas hotel
properties!

Answer:
PT Hotel Cahaya should not classify its hotel properties as investment properties since it is used in
the production or supply of services. Therefore, it should be classified as owner-occupied property,
which should be a property under IAS 16 Property, Plant, and Equipment or PSAK 16.

PROBLEM 3
PT LMN has adopted IAS 40/PSAK 13 and stated its investment properties at fair value even though
the properties are held under operating leases. On February 28, 2012, freehold Property C, stated at
revalued amount of Rp500,000,000 (originally used as its own office), was leased out to derive rental
income. Revaluation surplus recognized for C was Rp100,000,000, while Cs fair value at the date of
lease commencement is Rp550,000,000. Advise PT LMN in the accounting treatments on Freehold
Property C!

Answer:
Property C would be reclassified as investment property. In accordance with IAS 40/PSAK 13, PT LMN
should apply IAS 16/PSAK 16 on C up to the date of change in use and treat any difference at that
date between its carrying amount under IAS 16/PSAK 16, and its fair value in the same way as a
revaluation under IAS 16/PSAK 16.
Thus, a revaluation surplus of Rp50,000,000 would be further recognized.
Total revaluation reserves would become Rp150,000,000 (50,000,000 + 100,000,000)

The revaluation reserves of Rp150,000,000 would be frozen and accounted for in accordance with
IAS 16/PSAK 16 subsequently:

To recognize the additional revaluation surplus:

Property, Plant, and Equipment 50,000,000 550,000,000 500,000,000
Revaluation Reserves 50,000,000
Revaluation Reserve 150,000,000 100,000,000+50,000,000
Retained Earning 150,000,000
To reclassify the additional revaluation surplus:
Investment Property 550,000,000
Property, Plant, and Equipment 550,000,000

PROBLEM 4
Nirmala Resort Limited, a resort operator, is committed to a plan to sell its existing resort and has
initiated actions to locate a buyer. It has two plans on hand as follows:
a. Nirmala Resort will continue to use the resort and will not transfer it to buyer until construction of
a new resort is completed.
b. Nirmala Resort will transfer the resort to the buyer after it vacates the resort. The time necessary
to vacate the resort is usual and customary for sales of similar assets.

Evaluate whether the two plans can meet the criteria in IFRS 5/PSAK 58 to be available for immediate
sale!

Answer:
IFRS 5/PSAK 58 requires that the asset or disposal group should fulfil these criteria to be classified as
assets held for sale:
1. Its carrying amount will be recovered principally through a sale transaction rather than
through continuing use,
2. The asset or disposal group must be available for immediate sale, and
3. Its sale must be highly probable.

To be classified as held for sale, the asset (or disposal group) must be available for immediate sale in
its present condition and subject only to terms that are usual and customary for sales of such assets
(or disposal groups).

Therefore, Plan B meets the criteria in IFRS 5/PSAK 58 to be available for immediate sale since it is
stated that the time necessary to vacate the resort is usual and customary for sales of similar assets.
Meanwhile, Plan A does not meet the criteria.

PROBLEM 5
PT RST will classify its disposal group as held for sale. The disposal group includes goodwill; property,
plant and equipment; inventory; and available for sale financial assets. Before the classification as
held for sale, the carrying amount of these assets are as follows.

Carrying amount before classification as held for sale:

Goodwill Rp50,000,000
Property, plant, and equipment (carried at revalued amounts) 155,000,000
Property, plant, and equipment (carried at cost) 190,000,000
Inventory 80,000,000
AFS financial assets 60,000,000
Total 535,000,000

According to IFRS 5/PSAK 58, PT RST has to re-measure carrying amounts of all assets or liabilities
which are not within the scope of the measurement requirements of IFRS 5/PSAK 58 before the fair
value less costs to sell of the disposal group is re-measured. The re-measured carrying amounts are
as follows:

Carrying amount as re-measured immediately before classification as held for sale:

Goodwill Rp50,000,000
Property, plant, and equipment (carried at revalued amounts) 135,000,000
Property, plant, and equipment (carried at cost) 190,000,000
Inventory 75,000,000
AFS financial assets 50,000,000
Total 500,000,000

Pursuant to the classification of the group of assets as disposal group, the entity estimates that fair
value less costs to sell of the disposal group amounts to Rp435,000,000.

Required:
1. Calculate the impairment loss after the classification as held for sale!
2. Allocate the impairment loss to the individual asset!
3. Calculate carrying amount after allocation of impairment loss!

Answer:
PT RST recognizes the loss of Rp35,000,000 (535,000,000 500,000,000) immediately before
classifying the disposal group as held for sale. sebelum di klasifikasikan harus dinilai kembali
Loss on Impairment 35,000,000
PPE, Inventory, and AFS 35,000,000

Since PT RST measures a disposal group classified as held for sale at the lower of its carrying amount
and fair value less costs to sell, PT RST recognizes an impairment loss of Rp65,000,000 (500,000,000
435,000,000) when the group is initially classified as held for sale. selisih karena klasifikasi (mana
yang lebih rendah dari nilai tercatat atau nilai wajar dikurang nilai untuk menjual)

Allocation of impairment loss Rp65,000,000 to each individual asset.

Carrying amount as re- Allocated impairment Carrying amount after

measured immediately loss allocation of
before classification as impairment loss
 held for sale
Goodwill 50,000,000 (50,000,000) 0
Property, plant and 135,000,000 (6,230,769) 128,769,231
equipment (carried at
revalued amounts)
Property, plant and 190,000,000 (8,769,231) 181,230,769
equipment (carried at
cost)
Inventory 75,000,000 - 75,000,000
AFS financial assets 50,000,000 - 50,000,000
Total 500,000,000 (65,000,000) 435,000,000

PROBLEM 6
On January 1, 2012, PT ABC acquired an equipment with an estimated useful life of 8 years at
Rp100,000,000 (with no residual value). After the receipt of the equipment 3 days later, PT ABC
decided to sell it. The planned disposal fulfilled the criteria under IFRS 5/PSAK 58 and the fair value
less estimated costs to sell is same as cost. On 1 January 2013, PT ABC decided to withdraw the sale
and use the equipment for its own business operation. At that date, PT ABC estimated that the
recoverable amount may be: (1) Rp70,000,000; or (2) Rp90,000,000. Calculate the necessary
adjustments for each estimated recoverable amount!

Answer:
If the criteria to be classified as held for sale are no longer met because of changes to a plan of sale,
the entity ceases to classify the asset as held for sale. Then, an entity measures such non-current
asset that ceases to be classified as held for sale at the lower of its carrying amount before the asset
was classified as held for sale (adjusted for any depreciation, amortization or revaluations that would
have been recognized had the asset not been classified as held for sale) and its recoverable amount
at the date of the subsequent decision not to sell.

Any consequential adjustment shall be included in income from continuing operations in the period
in which the criteria on asset to be classified as held for sale are no longer met unless revaluation
under IAS 16/38 is adopted before classification as held for sale.

When PT RST decided to sell the equipment, equipment is carried at Rp100,000,000 and is classified
as non-current asset held for sale. Then, when the PT ABC decided to withdraw the sale, PT ABC
ceased to classify it as held for sale in which the carting amount would be Rp87,500,000 (depreciated
over 8 years).

For estimation 1 (Rp70,000,000):

Nilai tercatat = 100,000,000 depresiasi yaitu 12,500,000 sehingga nilai tercatat adalah 87,500,000
The equipment is measured at Rp70,000,000 (the lower of Rp87,500,000 and Rp70,000,000),
therefore the adjustment to P/L is Rp30,000,000.
Journal
Depreciation Expense 12,500,000
Acc. Depre 12,500,000
Acc Depre 12,500,000
Loss on Impairment 17,500,000
Asset held for sale 30,000,000
PPE 70,000,000
Asset held for sale 70,000,000

For estimation 2 (Rp90,000,000):

The equipment is measured at Rp87,500,000 (the lower of Rp87,500,000 and Rp90,000,000),
therefore the adjustment to P/L is Rp12,500,000.
Journal
Depreciation Expense 12,500,000
Acc. Depre 12,500,000
Acc Depre 12,500,000
Asset held for sale 12,500,000
PPE 87,500,000
Asset held for sale 87,500,000