On January 1, Year 1, Hol Company hired a general contractor to begin construction of a new office building. Hol negotiated a $900,000, five-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 were made evenly throughout the year. Construction is completed at the end of Year 1, and Hol 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, Hol 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:Use the two alternative methods allowed by IAS 16 with respect to the measurement of property, Plant and equipment subsequent to initial recognition to determined.

Question Completion:

a. Determine the amount of the building that would be reported in the balance sheet at the end of Years 1 - 5.

b. Determine the amount that would be recognized in the income statement  related to the building, in Years 1 - 5.

Hol Company

a.   Balance Sheet        Year 1       Year 2      Year 3      Year 4      Year 5

Building (Cost or revalued

amount)            $1,000,000 $1,000,000 $970,000 $970,000 $950,000

b. Income Statement    Year 1       Year 2      Year 3      Year 4      Year 5

Depreciation Expense $25,000   $25,000  $25,526  $25,526  $26,389

Revaluation Loss            $0             $0          $30,000   $0           $20,000

Explanation:

a) Data and Calculations:

Year 1 Cost of building = $1,000,000

Year 3 Revalued building = $970,000

Year 5 Revalued building = $950,000

b) IAS 16 allows the use of the Cost model and the Revaluation model.

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