Explain to the directors of genovate

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Reference no: EM133000719

Halfway through the year ended 31 December 20X3, Genovate acquired a property situated in the business district of a large city, which it subsequently leased under operating leases to several small businesses. At the time of purchase, the local government zoning rules stipulated that the property must be used for commercial rather than residential purposes. However, on 1 December 20X3 this restriction was removed. The directors have established that were the property to be sold at 31 December 20X3, it would raise $29 million if sold as a residential apartment block or $25 million if sold as commercial offices. In either case, legal fees of 1% of the sale price would be incurred. The directors are unsure which measure is appropriate given their intention to continue to lease the property to small businesses for commercial purposes.

Required

Problem 1: Explain to the directors of Genovate how the fair value of the property should be determined in accordance with International Financial Reporting Standards, with reference to the requirements of IFRS 13 Fair Value Measurement.

Reference no: EM133000719

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