Cost Model and Fair-value Model

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Add introduction (5%)

  1. Assume here are two separate real estate companies: France Realty (which applies the cost model), and International Realty (which applies the fair-value model). Assume also that on December 31, 2003, each company pays €1,000 cash to obtain investment property comprising land with negligible value and an office building worth €1,000. The building has a 10-year useful life, has no residual value, and is expected to provide a constant stream of economic benefits over time. What is the accounting entry for each company for the following four scenarios:
    (a) on December 31, 2003, at acquisition
    (b) on December 31, 2004, assuming the investment property fair value is €1,500
    (c) on December 31, 2005, assuming the investment property fair value is €1,200
    (d) on December 31, 2006, assuming the investment property fair value is €600
    (Show accounting entires in the separate excel file in tables and you can add revaluation model. Although it doesn’t require a step by step explanation, you do need to show understanding of the difference between models in Q1, so tables should be in separate file in excel (check it and add revaluation entries) and add some explanations for entries in word document as Q1) 25%
  2. Using the above illustrations, what financial analysis challenges arise as a result of these
    different accounting models? (Check the answer and rewrite it if needed) 5%
  3. As the CEO of Silic, which model, cost or fair value, would you adopt? Why? (also should be rewrited if needed or add some information) 25%
  4. In general, do you think the adoption of IFRS has improved financial reporting quality? Why?
    What evidence do you have? Use academic literature to support your arguments.
    (Check the answer and add some more sources if needed, case for literature review is also added to the materials) 40%

CASE STUDY: Silic is added to the materials, one of the sources for literature review is added

Group Cases in Acc is the file with answers should be corrected (Assignment should be no more than 2500 words)

Sample Solution

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