IAS 40- Investment Property
Definitions
Carrying amount is the amount at which an asset is recognised in the statement of financial position.
Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at
the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially
recognised in accordance with the specific requirements of other IFRSs, e.g. IFRS 2 Share-based Payment.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. (See IFRS 13 Fair Value Measurement).
Investment property is property (land or a building—or part of a building— or both) held (by the owner or by the
lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business.
Owner-occupied property is property held (by the owner or by the lessee as a right-of-use asset) for use in the
production or supply of goods or services or for administrative purposes.
Classification as Investment Property
Generates cash flows that's on largely independent of other assets held by the entity
Distinguishing factor from IAS 16- investment property not part of ordinary business activities, investment property
earns cash flows that are independent from other assets
If the business of the entity is renting out buildings, not investment property, but rather PPE
Examples par 8
Land held for long term capital appreciation
land held for currently undetermined future use- assume for capital appreciation
building leased out under one or more operating leases
Not investment property par 9
Intended for sale in the ordinary course of business
Owner occupied property(OOP), held for future use as OOP, property occupied by employees (regardless if they pay
market related rent)
Par 9c- like a hostel at a mine, where the mines employees occupy the hostel, owner occupied, even if employees are
paying market related rent
Leased to another entity under a finance lease
Constructed/developed on behalf of 3rd party
Dual purpose par 10
If a portion of e.g. a building is for rental and capital appreciation, and a portion for the production or supply of goods
or services, or for administrative purposes:
- If it can be sold separately; an entity accounts for the portions separately
- If it cannot be sold separately; IP only if insignificant portion is held for production
Can only split if there is an indication of the actual value of the different portions- e.g. enter into an agreement to sell
the different floors separately
Need to consider which part is significant, and allocate full portion to it
Ancillary services par 11-14
When the owner provides security and maintenance to the property rented out.
If services are insignificant- Investment Property
If services are significant- Owner occupied
Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so
that it can exercise that judgement consistently in accordance with the definition of investment property
, Recognition
When recognise- criteria par16
An owned investment property shall be recognised as an asset when, and only when:
a) Definition is met and
b) it is probable that the future economic benefits that are associated with the investment property will flow to the
entity; and
c) the cost of the investment property can be measured reliably
General
Evaluates under recognition principle all costs when they are incurred
Thus every time subsequent costs are incurred; they have to be evaluated against the recognition principles
Subsequent recognition
Day-to-day servicing
o Recognise in P/L as they are incurred, eg repairs and maintenance
Regular replacement
o Recognise in CA, the cost of replacing that part
o Derecognise CA of replaced part
Initial Measurement
Measured initially at cost
Same as cost model of IAS 16- take into account factors like non-monetary exchanges, commercial substance, fair
value etc.
Cost – Purchase price
- Costs directly attributable
- Transaction costs ( professional fees, property transfer taxes, etc)
Not part of costs
- Start-up costs
- Operating losses
- Abnormal wastage
If payment is deferred beyond normal terms
- Cost = Cash equivalent (financial calculator)
- Total payment – cash price equivalent = interest (recognise in P/L)
Exchange transaction
- Can be for a monetary or non-monetary asset or both
-
Subsequent recognition 30-32
Accounting policy decision between fair value model and cost model
IAS 8- voluntary change in accounting policy shall be made only if the change results in the financial statements
providing reliable and more relevant information
All entities must measure fair value of IP either for measurement or for disclosure (under cost model)
An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation
by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in
the location and category of the investment property being valued.
Policy choice: shall apply policy for all investment property (Not like IAS 16 where only a class of assets have to be
changed if there is a change in policy)
Fair value model
Gain or loss due to change in fair value is recognised in profit or loss for the period that it occurred in
DR Investment property (SFP)
Cr FV adjustment on Investment property(P/L)
Definitions
Carrying amount is the amount at which an asset is recognised in the statement of financial position.
Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at
the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially
recognised in accordance with the specific requirements of other IFRSs, e.g. IFRS 2 Share-based Payment.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. (See IFRS 13 Fair Value Measurement).
Investment property is property (land or a building—or part of a building— or both) held (by the owner or by the
lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business.
Owner-occupied property is property held (by the owner or by the lessee as a right-of-use asset) for use in the
production or supply of goods or services or for administrative purposes.
Classification as Investment Property
Generates cash flows that's on largely independent of other assets held by the entity
Distinguishing factor from IAS 16- investment property not part of ordinary business activities, investment property
earns cash flows that are independent from other assets
If the business of the entity is renting out buildings, not investment property, but rather PPE
Examples par 8
Land held for long term capital appreciation
land held for currently undetermined future use- assume for capital appreciation
building leased out under one or more operating leases
Not investment property par 9
Intended for sale in the ordinary course of business
Owner occupied property(OOP), held for future use as OOP, property occupied by employees (regardless if they pay
market related rent)
Par 9c- like a hostel at a mine, where the mines employees occupy the hostel, owner occupied, even if employees are
paying market related rent
Leased to another entity under a finance lease
Constructed/developed on behalf of 3rd party
Dual purpose par 10
If a portion of e.g. a building is for rental and capital appreciation, and a portion for the production or supply of goods
or services, or for administrative purposes:
- If it can be sold separately; an entity accounts for the portions separately
- If it cannot be sold separately; IP only if insignificant portion is held for production
Can only split if there is an indication of the actual value of the different portions- e.g. enter into an agreement to sell
the different floors separately
Need to consider which part is significant, and allocate full portion to it
Ancillary services par 11-14
When the owner provides security and maintenance to the property rented out.
If services are insignificant- Investment Property
If services are significant- Owner occupied
Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so
that it can exercise that judgement consistently in accordance with the definition of investment property
, Recognition
When recognise- criteria par16
An owned investment property shall be recognised as an asset when, and only when:
a) Definition is met and
b) it is probable that the future economic benefits that are associated with the investment property will flow to the
entity; and
c) the cost of the investment property can be measured reliably
General
Evaluates under recognition principle all costs when they are incurred
Thus every time subsequent costs are incurred; they have to be evaluated against the recognition principles
Subsequent recognition
Day-to-day servicing
o Recognise in P/L as they are incurred, eg repairs and maintenance
Regular replacement
o Recognise in CA, the cost of replacing that part
o Derecognise CA of replaced part
Initial Measurement
Measured initially at cost
Same as cost model of IAS 16- take into account factors like non-monetary exchanges, commercial substance, fair
value etc.
Cost – Purchase price
- Costs directly attributable
- Transaction costs ( professional fees, property transfer taxes, etc)
Not part of costs
- Start-up costs
- Operating losses
- Abnormal wastage
If payment is deferred beyond normal terms
- Cost = Cash equivalent (financial calculator)
- Total payment – cash price equivalent = interest (recognise in P/L)
Exchange transaction
- Can be for a monetary or non-monetary asset or both
-
Subsequent recognition 30-32
Accounting policy decision between fair value model and cost model
IAS 8- voluntary change in accounting policy shall be made only if the change results in the financial statements
providing reliable and more relevant information
All entities must measure fair value of IP either for measurement or for disclosure (under cost model)
An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation
by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in
the location and category of the investment property being valued.
Policy choice: shall apply policy for all investment property (Not like IAS 16 where only a class of assets have to be
changed if there is a change in policy)
Fair value model
Gain or loss due to change in fair value is recognised in profit or loss for the period that it occurred in
DR Investment property (SFP)
Cr FV adjustment on Investment property(P/L)
