Summary ACBP6221 Accounting 2A - LU4

ACBP6221 LU4



ACBP6221 LU4 IAS40 – Investment
property
4.1 Intro
Investment property is held as an investment either for capital appreciation or to generate
income.

Investment property is always a non-current asset.


4.2 Objectives and scope
Objectives
IAS40 – investment property prescribes the accounting treatment of and related disclosure
requirements for investment property

Scope
IAS40 doesn’t apply to:

- Biological assets
- Mineral rights and mineral reserves
- Property used in the production or supply of g/s or for administrative purposes
- Property held for sale in the ordinary course of business


4.3 Key terms
Investment property = property or part of a building held to earn rentals or for capital
appreciation or both, rather than for:

- use in the production or supply of goods or services
- for administrative purposes
- sale in the ordinary course of business.

Owner-occupied = Property held (by the owner or lessee under a finance lease) for use in
the property production or supply of goods or services or for administrative purposes.

Cost = amount of cash paid, or fair value of consideration given to acquire an asset at time
of acquisition or construction.

Carrying amount = The amount at which an asset is recognised in the statement of
financial position.

Fair value = 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.




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, ACBP6221 LU4


4.4 Classification of property as investment property of owner-occupied
property
Investment property generates cash flows.

Owner-occupied property is held for the production or supply of g/s or for admin purposes
and as such generate cash flows that are attributable to all assets used in the production or
supply process.

Examples of investment property:

- land held for long-term capital appreciation
- land held for a currently undetermined future use (i.e. the entity is still deciding
whether the land will be owner-occupied or sold in the short-term in the ordinary
course of business; until a decision is made, the land is considered to be held for the
purpose of capital appreciation)
- a building leased out under an operating lease
- a vacant building to be leased out under an operating lease
- property that is being constructed or developed for future use as investment property

Not investment property:

- property intended for sale in the ordinary course of business or property in the
process of construction or development for sale
- property held for use in the production or supply of goods or services (owner
occupied)
- property used for administrative purposes (owner occupied)
- property held for future use as owner-occupied property
- property held for future development and subsequent use as owner-occupied
property
- property occupied by employees
- owner-occupied property awaiting disposal
- property leased to another entity under a finance lease

4.4.1 Partial own use / joint use
Situations where the entity uses part of its property for its own use and part to earn rentals or
capital appreciation.

The entity should then account for each portion separately:

- Portion used for its own use – PPE
- Portion used to earn rentals / capital appreciation – investment property

If the portions cannot be sold separately, the property is an investment property if an
insignificant portion is owner-occupied by the entity

4.4.2 Ancillary services
An entity (lessor) provides ancillary services to the lessees of the property. These services
are insignificant to the lease arrangement as a whole.

- Security provided by an estate

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