Kantanka Ltd adopts the revaluation model of IAS 16 Property, Plant & Equipment and the fair value model of IAS 40 Investment Property. Kantanka Ltd chooses to recognize any fair value gains or losses arising on its equity investments in ‘other comprehensive income’ as permitted by IFRS 9 Financial Instruments. The following transactions relate to Kantanka Ltd for the year ended 31 March 2017.
i) Kantanka Ltd owns a piece of property it purchased on 1 April 2014 for Tsh 3.7 million.
The land component of the property was estimated to be Tsh1.2 million at the date of purchase. The useful economic life of the building on this land was estimated to be 25 years on 1 April 2014. The property was used as the corporate head office for two years from that date. On 1 April 2016, the company moved its head office to another building and leased the entire property for five years to an unrelated tenant on an arm’s length basis in order to benefit from the rental income and future capital appreciation. The fair value of the property on 1 April 2016 was Tsh 4.1 million (land component Tsh1.9 million), and on 31 March
2017, Tsh 4.8 million (land component Tsh 2.1 million). The estimated useful economic life remained unchanged throughout the period. Land and buildings are considered to be two separate assets by the directors of Kantanka Ltd.
ii) Kantanka Ltd holds a portfolio of equity investments the value of which was correctly recorded at Tsh 12 million on 1 April 2016. During the year ended 31 March 2017, the company received dividends of Tsh 0.75 million. Further equity investments were purchased at a cost of Tsh 1.6 million. Shares were disposed of during the year for proceeds of Tsh 1.1 million. These shares had cost Tsh 0.4 million a number of years earlier but had been valued at Tsh 0.9 million on 1 April 2016. The fair value of the financial assets held on 31 March 2017 was Tsh 14 million.
Advise Kantanka Ltd on how to account for the above transactions in accordance with relevant accounting standards.