Freehold property purchased during the year is recorded at cost. The cost of a freehold property is allocated between land and buildings based on their respective estimated fair values at the date of acquisition.
Land is considered to have an indefinite useful life and, therefore, is not depreciated. Buildings are depreciated over their expected useful economic life, which is typically 50 years on a straight-line basis.
In the absence of a professional valuation at the time of purchase, the allocation between land and buildings is based on a reasonable estimate derived from typical industry ratios for similar properties in the area. For the freehold office acquired in the current year, 30% of the purchase cost has been attributed to land and 70% to buildings.
The allocation of cost between land and buildings will be reviewed if further information becomes available or if the property is revalued in the future.