Summary FAC2601 Learning Unit 6- Investment property.docx

Learning unit 6
Investment property




6.1 Objective:
IAS 40 prescribes accounting treatment (recognition & measurement) for investment
property & related disclosure requirements




6.2 Background:

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, IAS 40 applies to investment property including:
 Investment property held under a finance lease in fin statements of lessee &
 Investment property leased out under operating lease in fin statements of lessor


IAS 40 does NOT deal with:
 Forests & similar regenerative natural resources (biological assets) &
 Mineral rights, the exploration for & extraction of minerals, oil, natural gas & similar
non-regenerative natural resources




6.3 Definitions:
Following terms used in standard with the meanings specified:
- Carrying amount
- Cost
- Fair value
- Investment property
- Owner-occupied property


1. Carrying amount:
= amount at which asset is recognised in statement of fin position


2. Cost:
= amount of:
 cash or cash equivalents paid or
 fair value of other consideration given
 to acquire an asset at time of its acquisition or construction or,
 where applicable, amount attributed to asset when initially recognised in accordance
with specific requirements of IFRS


3. Fair value:
= price received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date




4. Investment property:




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, = property (land or buildings – or part of building – or both) held by owner or lessee
under finance lease – to earn rentals or for capital appreciation or both rather than
for:
 Use in production or supply of goods & services or for admin purposes or
 Sale in ordinary course of business


5. Owner-occupied property:
= property held (by owner of lessee under finance lease) for use in production or supply
of goods or services or for admin purposes




6.4 Nature of investment property:
Investment property is property that is held:
 To earn rentals,
 For capital appreciation
 Or both


For property to be classified as investment property – it must:
= generate cash flows largely independently of the other assets held by an entity.


This distinguishes investment property from owner-occupied property.
 The production or supply of goods or services (or the use of property for administrative
purposes)
 generates cash flows that are attributable not only to property, but also to other assets
used in the production or supply process = owner-occupied


Points regarding the ability to classify property as investment property:
 It is therefore not property held for use in production or supply of goods or services or
for administrative purposes,
 and is also not property held for sale in the normal course of business.
 It therefore means that owner-occupied property does not qualify


Property used for dual purposes:
 If portions of asset can be sold or leased separately under a finance lease
agreement
 If affirmative = accounts for portions separately as investment property & owner-
occupied property
 If not affirmative (cannot be sold separately) = property is investment property only
if an insignificant portion is held for use of production or supply of goods or services
or for admin purposes


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