Question (Change in use)

PPE to IP
CIMB Group owns a building on freehold land which it has been using as its head office on 1
January 2024. The building on freehold land had an original cost on 1 January 2024 of RM
1,408,836,000 and was being depreciated over 50 years.

On 30 June 2026, it moved its head office functions to one of its production centres and is now
letting out its head office at the original building on freehold land.
On 30 June 2026, its fair value was judged to be RM 1,648,000,000. The fair value of the
building on 31 December 2027 is RM 1,100,000,000.

CIMB Group’s policy is to use the fair value model for investment property. And using the cost
model for property, plant, and equipment.

CIMB Group accounting year end is 31 December.

Calculation

RM’000
1 Jan 2024 Cost 1,408,836
Less: accumulated depreciation (70,441.80)
(1,408,836 / 50 years*2.5 years)

30 June 2026 Carrying amount 1,338,394.20

Fair value gain 309,605.80
30 June 2026 Fair value 1,648,000
Fair value loss (548,000)
31 Dec 2027 Fair value 1,100,000
Fair value gain 1,400,000
30 April 2028 Fair value 2,500,000
Depreciation
(2,500,000 / 45 years* 8/12) (37,037)
31 Dec 2028 Carrying amount 2,462,963
(i) PPE (IAS 16)

CIMB Group recognised the freehold building as PPE under IAS 16 using the cost model.
According to IAS 16 para 30, the company using cost model, therefore the cost less any
accumulated depreciation and impairment losses. It was recorded at RM1,408,836 on 1 January
2024 and depreciated over 50 years, with annual depreciation of RM70,442 charged to profit or
loss as an expense.

IP (IAS 40)
(Building transferred from PPE to IP)
On 30 June 2026, CIMB Group started to renting out, under IAS 40 para 35, the company using
fair value model for investment property as at 30 June 2026, therefore the Investment property
will be revalued to its fair value at the end of each reporting period, the gain or loss on the
revaluation will be recognised in the statement of profit or loss and there is no depreciation
charge on the investment property.

The building was reclassified as an investment property as its fair value of RM 1,648,000. The
difference between the fair value (RM 1,648,000) and the carrying amount under PPE (RM
1,338,394) and there is a fair value gain of RM 309,606 which will be recognise in the statement
of profit or loss under income, as per IAS 40 para 35.

The fair value of the investment property on 31 December 2027, it declined to RM 1,100,000
leading to fair value loss of RM 548,000, which will be recognising in statement of profit or loss,
under expense.
Journal entries

Date Particular RM’000

1 January 2024 Dr Property, Plant and Equipment (Building) 1,408,836

Cr Bank 1.408,836
(To record the purchase of the building)

1 January 2025 Dr Depreciation Expense 28,176,720

Cr Accumulated Depreciation – Building 28,176,720
( RM 1,408,836 / 50 years)
( To record the annual depreciation in 2025)

30 June 2026 Dr Depreciation Expense 70,441,800\

Cr Accumulated Depreciation – Building 70,441,800
( RM 1,408,836 / 50 years*2.5 years)
(To record the total depreciation accumulated from 1
Jan 2024 to 30 June 2026)

30 June 2026 Dr Investment Property 1,648,000

Cr Property, Plant and Equipment (Carrying amt) 1,338,394.20
Cr Gain on Revaluation (P&L) 309,605.80
(To record the transfer of the building from PPE to
investment property at fair value.)

31 December 2027 Dr Fair Value Loss (P&L) 548,000

Cr Investment Property 548,000
(To record the decrease in fair value of the investment
property)
Question 2 (PPE ONLY) Second building

CIMA Group own a buildings on leasehold land cost RM 33,259,000 on 1 January 2024. The estimated to
have an economic life of 50 years. The company uses the cost model under IAS 16 Property, plant and
equipment and depreciate its buildings based on the straight-line basis.

On 31 December 2026, the company changed its policy from the cost model to the revaluation model
under IAS 16. On this date, the fair value of its buildings was RM25,000,000. After the revaluation, the
company’s estimated useful life is 20 years.

On 1 January 2027, CIMA Group performed the second revaluation on its buildings. The fair value of its
buildings on this date was RM 51,000,000, and there is no change to the remaining useful life.

Discuss the accounting treatment of the buildings in the financial statements of CIMA Group for the year
ended 31 December.
Calculation

RM’000
1 Jan 2024 Cost 33,259
Less: accumulated depreciation (1,995.06)
(33,259 / 50 years*3 years)

31 Dec 2026 Carrying amount 31,263.94

Revaluation loss (6,263.94)
31 Dec 2026 Revaluation 25,000
Less: accumulated depreciation
(25,000 / 20 years) (1,250)
1 Jan 2027 Carrying value 23,750
Revaluation surplus 27,250
1 Jan 2027 Revaluation 51,000
Less: accumulated depreciation
( 51,000 / 19 years) (2,684.21)
31 Dec 2027 Carrying value 48,315.79
Discussion

CIMB Group initially recognised the leasehold building as PPE under IAS 16 using the cost
model. According to IAS 16 para 30, the company uses a cost model, therefore the cost less any
accumulated depreciation and impairment losses.
It was recorded at RM33,259,000 on 1 January 2024 and depreciated over 50 years. Annual
depreciation of RM1,995,540 will be charged as an expense in the profit or loss statement.

On 31 December 2026, CIMA Group changed its policy from the cost model to the revaluation
model. IAS 16 para 31 states that when a company switches to the revaluation model, the asset
must be revalued to its fair value.

The building was revalued to RM25,000,000, resulting in a revaluation loss of RM6,263,460,

which will be recorded as an expense in the profit or loss statement for the year ended 31
December 2026. Depreciation for the year, based on the revalued amount, is RM1,250,000. At
year end, the building will be shown in the SOFP at RM23,750,000 (revaluation amount less
accumulated depreciation).

At the start of the year, the building was revalued to RM51,000,000, creating a surplus of
RM27,250,000, reported under OCI and revaluation reserve under equity SOFP. Annual
depreciation is RM2,684,211. The carrying amount as of 31 December 2027 is RM48,315,789 in
the SOFP.
Journal entries

Date Particulars RM’000

31 December 2026 Dr Depreciation Expense 1,995,060

Cr Accumulated Depreciation - Building 1,995,060
(To record depreciation on the leasehold building
for 3 years using the straight-line method under the
cost model.)

31 December 2026 Dr Accumulated Depreciation - Building 1,995,060

Cr Building Account 1,995,060
(To eliminate accumulated depreciation on the
building prior to applying the revaluation model.)

31 December 2026 Dr Revaluation Loss (P&L) 6,263,940

Cr Building Account 6,263,940
(To record the decrease in fair value of the building
upon switching from the cost model to the
revaluation model as per IAS 16.)

31 December 2027 Dr Depreciation Expense 1,250,000

Cr Accumulated Depreciation - Building 1,250,000
(To record depreciation for the year 2027 on the
revalued amount over its estimated useful life.)

1 January 2027 Dr Building Account 27,250,000

Cr Revaluation Surplus (OCI) 27,250,000
(To recognize the revaluation surplus resulting
from the second revaluation of the building on 1
January 2027 in Other Comprehensive Income
(OCI).)

31 December 2027 Dr Depreciation Expense 2,684,210

Cr Accumulated Depreciation - Building 2,684,210
(To record depreciation for 2027 based on the
newly revalued amount over the remaining useful
life.)