FAC3702
EXAM PACK
,FAC3702 – Distinctive Financial Reporting
OCTOBER/NOVEMBER 2025
EXAM ANSWERS
QUESTION 1 (50 marks)
1(a) Land — Journal entries (14 marks)
Step 1: Determine the initial cost
Under IAS 16, the cost of the land includes the purchase price and directly attributable
costs necessary to acquire the asset. The environmental and development consultation
fees are also included here because they relate to assessing the land's suitability for its
intended use.
Cost component Amount (R)
Purchase price 8,000,000
Legal fees 120,000
Non-refundable transfer duties 480,000
Environmental and development consultation 100,000
Initial cost 8,700,000
Step 2: Apply the relevant accounting standards
From 1 July 2022 until 1 July 2025, the land was held for the future expansion of
the company's own operations. It was therefore owner-occupied land held for
future operational use and accounted for under the IAS 16 revaluation model.
From 1 July 2025, the board's change of intention meant that the land was held
for capital appreciation. It therefore qualified as investment property under IAS
40.
, Under the IAS 40 fair value model, changes in fair value are recognised in profit
or loss.
Journal entries
1 July 2022 — Initial recognition
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 8,700,000 —
Bank (Statement of Financial Position) — 8,700,000
30 September 2022 — Revaluation increase
Calculation:
\[ R9,500,000-R8,700,000=R800,000 \]
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 800,000 —
Revaluation surplus (Other Comprehensive Income) — 800,000
30 September 2023 — Revaluation decrease
Calculation:
\[ R9,500,000-R8,900,000=R600,000 \]
The decrease is recognised in profit or loss because there is no previous revaluation
decrease to reverse in profit or loss, but there is an existing revaluation surplus of
R800,000. Therefore, the decrease is first recognised in other comprehensive income to
the extent of the existing surplus.
Account Debit (R) Credit (R)
Revaluation surplus (Other Comprehensive Income) 600,000 —
, Land (Statement of Financial Position) — 600,000
30 September 2024 — Revaluation increase
Calculation:
\[ R10,200,000-R8,900,000=R1,300,000 \]
The increase reverses the previous revaluation decrease recognised in other
comprehensive income, with any remaining increase recognised in the revaluation
surplus.
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 1,300,000 —
Revaluation surplus (Other Comprehensive Income) — 1,300,000
1 July 2025 — Transfer to investment property
The land is transferred at its fair value on the date the change in use occurs. The fair
value of R11,200,000 becomes the deemed cost for IAS 40 purposes.
The transfer itself is:
Account Debit (R) Credit (R)
Investment property (Statement of Financial Position) 11,200,000 —
Land (Statement of Financial Position) — 11,200,000
30 September 2025 — Fair value adjustment of investment property
Calculation:
\[ R10,950,000-R11,200,000=-R250,000 \]
Account Debit (R) Credit (R)
EXAM PACK
,FAC3702 – Distinctive Financial Reporting
OCTOBER/NOVEMBER 2025
EXAM ANSWERS
QUESTION 1 (50 marks)
1(a) Land — Journal entries (14 marks)
Step 1: Determine the initial cost
Under IAS 16, the cost of the land includes the purchase price and directly attributable
costs necessary to acquire the asset. The environmental and development consultation
fees are also included here because they relate to assessing the land's suitability for its
intended use.
Cost component Amount (R)
Purchase price 8,000,000
Legal fees 120,000
Non-refundable transfer duties 480,000
Environmental and development consultation 100,000
Initial cost 8,700,000
Step 2: Apply the relevant accounting standards
From 1 July 2022 until 1 July 2025, the land was held for the future expansion of
the company's own operations. It was therefore owner-occupied land held for
future operational use and accounted for under the IAS 16 revaluation model.
From 1 July 2025, the board's change of intention meant that the land was held
for capital appreciation. It therefore qualified as investment property under IAS
40.
, Under the IAS 40 fair value model, changes in fair value are recognised in profit
or loss.
Journal entries
1 July 2022 — Initial recognition
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 8,700,000 —
Bank (Statement of Financial Position) — 8,700,000
30 September 2022 — Revaluation increase
Calculation:
\[ R9,500,000-R8,700,000=R800,000 \]
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 800,000 —
Revaluation surplus (Other Comprehensive Income) — 800,000
30 September 2023 — Revaluation decrease
Calculation:
\[ R9,500,000-R8,900,000=R600,000 \]
The decrease is recognised in profit or loss because there is no previous revaluation
decrease to reverse in profit or loss, but there is an existing revaluation surplus of
R800,000. Therefore, the decrease is first recognised in other comprehensive income to
the extent of the existing surplus.
Account Debit (R) Credit (R)
Revaluation surplus (Other Comprehensive Income) 600,000 —
, Land (Statement of Financial Position) — 600,000
30 September 2024 — Revaluation increase
Calculation:
\[ R10,200,000-R8,900,000=R1,300,000 \]
The increase reverses the previous revaluation decrease recognised in other
comprehensive income, with any remaining increase recognised in the revaluation
surplus.
Account Debit (R) Credit (R)
Land (Statement of Financial Position) 1,300,000 —
Revaluation surplus (Other Comprehensive Income) — 1,300,000
1 July 2025 — Transfer to investment property
The land is transferred at its fair value on the date the change in use occurs. The fair
value of R11,200,000 becomes the deemed cost for IAS 40 purposes.
The transfer itself is:
Account Debit (R) Credit (R)
Investment property (Statement of Financial Position) 11,200,000 —
Land (Statement of Financial Position) — 11,200,000
30 September 2025 — Fair value adjustment of investment property
Calculation:
\[ R10,950,000-R11,200,000=-R250,000 \]
Account Debit (R) Credit (R)
