Swire Pacific
Response to the following problem:
Swire Pacific, Ltd., based in Hong Kong, is one of the largest companies in the world. The primary operations of the company are in the regions of Hong Kong, China, and Taiwan where it has operated for over 125 years. Swire operates Cathay Pacific Airways and has extensive real estate holdings in Hong Kong
Swire includes in its fixed assets those long-term assets held as investment properties. In 2002, the company noted that it revalued those assets each year for increases and decreases in fair value. During 2002, Swire reduced the value of those assets on their books by $5.161 billion in Hong Kong dollars
1. Can you compose the journal entry made by Swire Pacific accountants to write the assets down in value? What would be the debit portion of the journal entry?
2. Suppose that in the next year, the assets were again revalued and it was determined that a difference existed between market value and book value of only $3 billion Hong Kong dollars. How would this year's journal entry differ from the previous year's?