Veeran's Aunt
New member
I was given this question last night and its due tomorrow;. I thought I understood the case but I am so wrong about it. The case is---->
Real Estate Investment Trust was created to hold hotel properties. REITcurrently holds 20 luxury and first-class hotels in Asia. The entity is structured as an investment trust, which means that the trust does not pay income taxes on the earnings from the assets that it holds directly; instead, income taxes are paid by the unitholders—those who own ownership units in the trust. The other key feature of the trust is that 80% to 85% of the distributable income is required to be paid to unitholders every year. The units of REIT trade on the national stock exchange.
Distributable income is calculated as net income (according to GAAP) before special charges less a replacement reserve, which is an amount set aside to refurbish assets. REIT distributed 127% and 112% of its distributable income in 2011 and 2010, respectively. Management calculates distributable income since this calculation is not defined by GAAP. As at the end of 2011, property and equipment was $1.7 billion compared with $1.9 billion in total assets. Net income for the year was $55 million.
According to the notes to the financial statements, REIT accounts for its property, plant, and equipment at amortized cost.
Instructions: Assume the role of the entity's auditor, and discuss any financial reporting issues. REIT changed over to IFRS in 2011
From what I understand REIT use the "fair value" model in 2011. REIT measure its Investment Property at transition to IFRS at fair value and will revalue its Investment Property at fair value at each reporting period
The fair value of Investment Property will be reported on the Balance Sheet, with revaluation adjustments reported in net earnings, and will be used in the calculation.
Under the cost model, fair value changes would have been reported in the notes to the financial statements
Real Estate Investment Trust was created to hold hotel properties. REITcurrently holds 20 luxury and first-class hotels in Asia. The entity is structured as an investment trust, which means that the trust does not pay income taxes on the earnings from the assets that it holds directly; instead, income taxes are paid by the unitholders—those who own ownership units in the trust. The other key feature of the trust is that 80% to 85% of the distributable income is required to be paid to unitholders every year. The units of REIT trade on the national stock exchange.
Distributable income is calculated as net income (according to GAAP) before special charges less a replacement reserve, which is an amount set aside to refurbish assets. REIT distributed 127% and 112% of its distributable income in 2011 and 2010, respectively. Management calculates distributable income since this calculation is not defined by GAAP. As at the end of 2011, property and equipment was $1.7 billion compared with $1.9 billion in total assets. Net income for the year was $55 million.
According to the notes to the financial statements, REIT accounts for its property, plant, and equipment at amortized cost.
Instructions: Assume the role of the entity's auditor, and discuss any financial reporting issues. REIT changed over to IFRS in 2011
From what I understand REIT use the "fair value" model in 2011. REIT measure its Investment Property at transition to IFRS at fair value and will revalue its Investment Property at fair value at each reporting period
The fair value of Investment Property will be reported on the Balance Sheet, with revaluation adjustments reported in net earnings, and will be used in the calculation.
Under the cost model, fair value changes would have been reported in the notes to the financial statements