IAS 40: INVESTMENT PROPERTY
Dissertation by
(ICB Member ID __________)
Submitted in fulfilment of the requirements for the National Diploma:
FINANCIAL ACCOUNTING
(SAQA ID: 20366)
September 2021
DECLARATION BY STUDENT:
I declare that this mini-dissertation submitted by me, is my own work, that I
have referenced all the sources that I have used and that no part was
previously submitted at any tertiary institution.
Signature: Date: 1 September 2021
, ABSTRACT
The purpose of this dissertation is to carry out thorough research of the international critique,
both positive (strengths) and negative (weaknesses) with respect to International Accounting
Standards IAS 40 Investment Property. The author will provide practical evidence
supporting the findings as a result of the research undertaken. This dissertation will
conclude with a summary of international recommendations on how the author, in her
opinion, feels the standard may be improved.
The author has had the opportunity to deepen her knowledge within financial accounting and
in particular, the International Accounting Standard IAS 40 Investment Property through the
writing of this dissertation.
In order to obtain a comprehensive spectrum of knowledge on the subject, an in depth
investigation was conducted using available information from the internet. International
comments from countless sources have been used to argue and support findings.
Investment property in the past has always been questionable due to the volatility of the
market and valuation honesty. However, in 2020/2021 this has become a greater
uncertainty due to COVID-19. Many employers encouraged their employees to work from
home, which resulted in many commercial properties standing empty for long periods of
time. Unfortunately many tenants felt the impact of COVID-19 and were unable to meet their
financial obligations of paying rent. This too resulted in commercial property becoming
vacant and lessors finding themselves without the usual rental income that is generated from
their investment properties.
The question is whether it is detrimental or incremental to own investment property as
tangible assets under the cost model or the fair value model in the current economic
conditions. Owner-run investment property does have its benefits as it will realise profit at
year end. However, investment property that is purely for rental income could under the
current circumstances reflect a significant loss, both in rental income and fair value
adjustment.
This dissertation will take the reader through a journey, starting with a brief history of
accounting, followed by an introduction to IFRS and IAS 40 Investment Property. The author
proceeds to evaluate two amendments that were made to IAS 40 Investment Property since
i
,its inception in April 2000, as well as current issues that are still encountered in practice.
The author felt it appropriate to evaluate subsequent measurement of investment property
as there are still some countries that treat investment property under the IAS 16 PPE model.
The author concludes with an international comparison of 4 countries and how reporting
standards differ for investment property under their accounting standards regulations.
The author hopes that this dissertation meets the expectations that are sought by the
Institute of Certified Bookkeepers.
ii
, ABBREVIATIONS USED
APB Accounting Practices Board
ASBJ Accounting Standards Board of Japan
ATT Association of Accounting Technicians
CBD Central Business District
CPA Certified Public Accountants
ED Exposure Draft
FASB Financial Accounting Standards Board
FIFO First-In, First-Out
FSA Financial Services Agency
GAAP/s Generally Accepted Accounting Principle/s
IAS/s International Accounting Standard/s
IAS 16 International Accounting Standard 16 – Property, Plant and Equipment
IAS 17 International Accounting Standard 17 – Leases
IAS 2 International Accounting Standard 2 – Inventories
IAS 38 International Accounting Standard 38 – Intangible Assets
IAS 40 International Accounting Standard 40 – Investment Property
IAS 41 International Accounting Standard 41 – Agriculture
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
IFAC International Federation of Accountants
IFRG International Financial Reporting Group
IFRIC International Financial Reporting Interpretations Committee
IFRS 3 International Financial Reporting Standard 3 – Business Combinations
IFRS/s International Financial Reporting Standard/s
INAA Association of International Accountants and Auditors
Ind AS Indian Accounting Standards
IPSAS International Public Sector Accounting Standards
JGAAP Japanese Generally Accepted Accounting Principles
JSE Johannesburg Stock Exchange
LIFO Last-In, First-Out
OCI Other Comprehensive Income
PPE Property, Plant and Equipment
SEC U.S. Securities and Exchange Commission
U.S. United States of America
iii
, TABLE OF CONTENTS
Dedications .............................................................................................................................. i
Acknowledgements..................................................................................................................ii
Abstract....................................................................................................................................iii
Abbreviations used...................................................................................................................v
Table of contents.....................................................................................................................vi
List of tables.............................................................................................................................x
List of figures............................................................................................................................x
Chapter 1: Introduction.........................................................................................................1
1.1 Accounting - Then and Now…………………..........…………………………..………...1
Chapter 2: Introduction to IFRS............................................................................................3
2.1 Overview of the structure of the IFRS Foundation and IASB.....................................3
2.2 Development of the standards...................................................................................5
2.3 IFRS versus IAS versus GAAP..................................................................................6
2.4 IFRS adoption...........................................................................................................7
2.5 Advantages and disadvantages of IFRS adoption.....................................................8
2.6 Current critique of IFRS adoption for USA.................................................................9
2.7 South Africa's journey to IFRS adoption..................................................................10
Chapter 3: Introduction to IAS 40 Investment Property...................................................11
3.1 Overview.................................................................................................................11
3.2 History of IAS 40.....................................................................................................11
3.3 Objective of IAS 40..................................................................................................12
3.4 Scope.......................................................................................................................12
3.5 Key terms.................................................................................................................13
iv
, 3.6 Classification of investment property or owner-occupied property...........................13
3.6.1 Property that would fall under scope of IAS 40...............................................13
3.6.2 Property that would not fall under scope of IAS 40.........................................14
3.6.3 Further classification of property as investment property or
owner-occupied property................................................................................14
3.7 Recognition..............................................................................................................15
3.8 Measurement at recognition.....................................................................................15
3.9 Measurement after recognition................................................................................16
3.9.1 Cost model......................................................................................................16
3.9.2 Fair value model.............................................................................................16
3.10 Transfer to / from investment property.....................................................................17
3.11 Derecognition...........................................................................................................18
3.12 Disclosure...............................................................................................................18
3.13 Effective date..........................................................................................................19
Chapter 4: Amendment to IAS 40 in terms of classification............................................20
4.1 Overview.................................................................................................................20
4.2 Negative international critique.................................................................................21
4.3 Positive international critique...................................................................................22
4.4 Approval and public announcement........................................................................23
4.5 Summary of international recommendations...........................................................23
Chapter 5: Amendment to IAS 40 in terms of transfers...................................................24
5.1 Overview..................................................................................................................24
5.2 Analysis of responses - proposed amendment........................................................24
5.2.1 International critique........................................................................................25
5.2.2 Negative international critique ........................................................................28
5.3 Analysis of responses - transition............................................................................28
5.4 Approval and public announcement.........................................................................29
v
Dissertation by
(ICB Member ID __________)
Submitted in fulfilment of the requirements for the National Diploma:
FINANCIAL ACCOUNTING
(SAQA ID: 20366)
September 2021
DECLARATION BY STUDENT:
I declare that this mini-dissertation submitted by me, is my own work, that I
have referenced all the sources that I have used and that no part was
previously submitted at any tertiary institution.
Signature: Date: 1 September 2021
, ABSTRACT
The purpose of this dissertation is to carry out thorough research of the international critique,
both positive (strengths) and negative (weaknesses) with respect to International Accounting
Standards IAS 40 Investment Property. The author will provide practical evidence
supporting the findings as a result of the research undertaken. This dissertation will
conclude with a summary of international recommendations on how the author, in her
opinion, feels the standard may be improved.
The author has had the opportunity to deepen her knowledge within financial accounting and
in particular, the International Accounting Standard IAS 40 Investment Property through the
writing of this dissertation.
In order to obtain a comprehensive spectrum of knowledge on the subject, an in depth
investigation was conducted using available information from the internet. International
comments from countless sources have been used to argue and support findings.
Investment property in the past has always been questionable due to the volatility of the
market and valuation honesty. However, in 2020/2021 this has become a greater
uncertainty due to COVID-19. Many employers encouraged their employees to work from
home, which resulted in many commercial properties standing empty for long periods of
time. Unfortunately many tenants felt the impact of COVID-19 and were unable to meet their
financial obligations of paying rent. This too resulted in commercial property becoming
vacant and lessors finding themselves without the usual rental income that is generated from
their investment properties.
The question is whether it is detrimental or incremental to own investment property as
tangible assets under the cost model or the fair value model in the current economic
conditions. Owner-run investment property does have its benefits as it will realise profit at
year end. However, investment property that is purely for rental income could under the
current circumstances reflect a significant loss, both in rental income and fair value
adjustment.
This dissertation will take the reader through a journey, starting with a brief history of
accounting, followed by an introduction to IFRS and IAS 40 Investment Property. The author
proceeds to evaluate two amendments that were made to IAS 40 Investment Property since
i
,its inception in April 2000, as well as current issues that are still encountered in practice.
The author felt it appropriate to evaluate subsequent measurement of investment property
as there are still some countries that treat investment property under the IAS 16 PPE model.
The author concludes with an international comparison of 4 countries and how reporting
standards differ for investment property under their accounting standards regulations.
The author hopes that this dissertation meets the expectations that are sought by the
Institute of Certified Bookkeepers.
ii
, ABBREVIATIONS USED
APB Accounting Practices Board
ASBJ Accounting Standards Board of Japan
ATT Association of Accounting Technicians
CBD Central Business District
CPA Certified Public Accountants
ED Exposure Draft
FASB Financial Accounting Standards Board
FIFO First-In, First-Out
FSA Financial Services Agency
GAAP/s Generally Accepted Accounting Principle/s
IAS/s International Accounting Standard/s
IAS 16 International Accounting Standard 16 – Property, Plant and Equipment
IAS 17 International Accounting Standard 17 – Leases
IAS 2 International Accounting Standard 2 – Inventories
IAS 38 International Accounting Standard 38 – Intangible Assets
IAS 40 International Accounting Standard 40 – Investment Property
IAS 41 International Accounting Standard 41 – Agriculture
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
IFAC International Federation of Accountants
IFRG International Financial Reporting Group
IFRIC International Financial Reporting Interpretations Committee
IFRS 3 International Financial Reporting Standard 3 – Business Combinations
IFRS/s International Financial Reporting Standard/s
INAA Association of International Accountants and Auditors
Ind AS Indian Accounting Standards
IPSAS International Public Sector Accounting Standards
JGAAP Japanese Generally Accepted Accounting Principles
JSE Johannesburg Stock Exchange
LIFO Last-In, First-Out
OCI Other Comprehensive Income
PPE Property, Plant and Equipment
SEC U.S. Securities and Exchange Commission
U.S. United States of America
iii
, TABLE OF CONTENTS
Dedications .............................................................................................................................. i
Acknowledgements..................................................................................................................ii
Abstract....................................................................................................................................iii
Abbreviations used...................................................................................................................v
Table of contents.....................................................................................................................vi
List of tables.............................................................................................................................x
List of figures............................................................................................................................x
Chapter 1: Introduction.........................................................................................................1
1.1 Accounting - Then and Now…………………..........…………………………..………...1
Chapter 2: Introduction to IFRS............................................................................................3
2.1 Overview of the structure of the IFRS Foundation and IASB.....................................3
2.2 Development of the standards...................................................................................5
2.3 IFRS versus IAS versus GAAP..................................................................................6
2.4 IFRS adoption...........................................................................................................7
2.5 Advantages and disadvantages of IFRS adoption.....................................................8
2.6 Current critique of IFRS adoption for USA.................................................................9
2.7 South Africa's journey to IFRS adoption..................................................................10
Chapter 3: Introduction to IAS 40 Investment Property...................................................11
3.1 Overview.................................................................................................................11
3.2 History of IAS 40.....................................................................................................11
3.3 Objective of IAS 40..................................................................................................12
3.4 Scope.......................................................................................................................12
3.5 Key terms.................................................................................................................13
iv
, 3.6 Classification of investment property or owner-occupied property...........................13
3.6.1 Property that would fall under scope of IAS 40...............................................13
3.6.2 Property that would not fall under scope of IAS 40.........................................14
3.6.3 Further classification of property as investment property or
owner-occupied property................................................................................14
3.7 Recognition..............................................................................................................15
3.8 Measurement at recognition.....................................................................................15
3.9 Measurement after recognition................................................................................16
3.9.1 Cost model......................................................................................................16
3.9.2 Fair value model.............................................................................................16
3.10 Transfer to / from investment property.....................................................................17
3.11 Derecognition...........................................................................................................18
3.12 Disclosure...............................................................................................................18
3.13 Effective date..........................................................................................................19
Chapter 4: Amendment to IAS 40 in terms of classification............................................20
4.1 Overview.................................................................................................................20
4.2 Negative international critique.................................................................................21
4.3 Positive international critique...................................................................................22
4.4 Approval and public announcement........................................................................23
4.5 Summary of international recommendations...........................................................23
Chapter 5: Amendment to IAS 40 in terms of transfers...................................................24
5.1 Overview..................................................................................................................24
5.2 Analysis of responses - proposed amendment........................................................24
5.2.1 International critique........................................................................................25
5.2.2 Negative international critique ........................................................................28
5.3 Analysis of responses - transition............................................................................28
5.4 Approval and public announcement.........................................................................29
v
