This action might not be possible to undo. Are you sure you want to continue?
At the end of the topic, students should be able to: Explain the nature of investment property Discuss the criteria for recognition Measure and record the investment property Explain the provision for transfer Discuss the disclosure requirements
CHAPTER OUTLINE Nature of investment property Recognition Measurement Transfer Derecognition Disclosure requirements 3 BKAF3063_A122 .
land or building) held to earn rentals or for capital appreciation or both (para. 5). 4 BKAF3063_A122 .INTRODUCTION Nature of investment property: Property (namely.
(If an entity has not determined that it will use the land as owner-occupied property or for short-term sale in the ordinary course of business.Examples of investment property: (para 8) land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business. d) a building that is vacant but is held to be leased out under one or more operating leases. e) property that is being constructed or developed for future use as investment property.) c) a building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases. BKAF3063_A122 a) 5 . b) land held for a currently undetermined future use. the land is regarded as held for capital appreciation.
& prop.MFRS 140 specifically excludes: (a) property intended for sale in the ordinary course of business or in the process of construction or development for such sale (b) property being constructed or developed on behalf of third parties (c) owner-occupied property (including held for future use as owner-occupied prop. occupied by employees) (d) property that is leased to another entity under a finance lease 6 BKAF3063_A122 .
b) If the portions could not be sold separately.should account for the portions as Investment Property (IP) and as PPE separately. 7 BKAF3063_A122 . the property qualifies as IP only if insignificant portion of the property is held for use in business. Properties that comprise a portion that is held to earn rentals/capital appreciation & another portion that is held for use in the business: (para 10) a) If the portions could be sold separately.
and b) the cost of the IP can be measured reliably.RECOGNITION Para 16 . 8 BKAF3063_A122 .IP should be recognized as an asset is and only if : a) it is probable that future economic benefits associated with the IP will flow to the entity.
is easily satisfied for an IP acquired from the market as of the existence of external transaction. a reliable measurement of the construction costs incurred is also often readily available. it is satisfied when the risks and rewards in relation to the ownership of the property have passed to the entity. 9 BKAF3063_A122 . 2nd condition. For internally constructed IP.RECOGNITION 1st condition.generally.
Determination of initial cost a) Purchased IP – Purchase price + any directly attributable expenditure (e. IP acquired in exchange for another asset.g.MEASUREMENT BASES Initial Recognition: IP should be measure at cost (para 20).should be measured at fair value BKAF3063_A122 10 . professional fees) b) c) Self-constructed IP – Cost of raw material + direct labor + factory OH that can be allocated to the asset.
MEASUREMENT BASES Subsequent Recognition: Choose: (a) the cost model. Assets may be carried at cost (or revalued amount) Assets subject to depreciation & impairment test 11 BKAF3063_A122 . or (b) the fair value model Cannot change from FV model to cost model Cost model measured in accordance with MFRS 116 for asset carried at cost.
MEASUREMENT BASES Illustration 4. The company choose to use the cost model. On 1 Jan 2007.000. and is expected to have a useful life of 50 years with no salvage value. and the straight line method of depreciation. the company uses its excess cash to buy a factory for investment purposes.1 ABC Bhd is a computer manufacturer. It adopts 31 Dec accounting year-end. 12 BKAF3063_A122 .000. The factory is rented out to another manufacturer. The factory costs RM50.
Measurement Bases The relevant journal entries for the first 2 years: 1/1/2007 Dr Inv Property 50.000.000.000 31/12/2007 Dr Depreciation exp Cr Acc dep 1.000.000.000 1.000.000 Cr Cash 50.000.000 1.000 BKAF3063_A122 .000 31/12/2008 Dr Depreciation exp Cr Acc dep 13 1.
Asset under operating lease that is accounted for as an IP should apply FV model (para 34). A gain or loss should be recognize in P&L for the period in which it arises (para 35). FV reflecting the market condition at the BS date (para 38). There is no need for depreciation and impairment test.MEASUREMENT BASES Fair value model IP will be measured at fair value (except for those FV cannot be reliably determined on a continuing basis under para 53). 14 BKAF3063_A122 .
000 as at 31 Dec 2008. The market value of the building is RM55. The factory costs RM50. On 1 Jan 2007.000. The company choose to use the Fair value model. and the straight line method of depreciation. It adopts 31 Dec accounting year-end. The factory is rented out to another manufacturer.000.000.MEASUREMENT BASES Illustration 4. the company uses its excess cash to buy a factory for investment purposes.2 ABC Bhd is a computer manufacturer.000 as at 31 Dec 2007 and RM48.000. 15 BKAF3063_A122 . and is expected to have a useful life of 50 years with no salvage value.
000.000.Measurement Bases The relevant journal entries for the first 2 years: 1/1/2007 Dr Inv Property 50.000.000 31/12/2008 Dr Fair value loss on IP Cr Inv Property 16 7.000 Cr Fair value gain on IP 5.000.000 Cr Cash 50.000.000.000 7.000 BKAF3063_A122 .000 31/12/2007 Dr Inv Property 5.
Inventories to IP (rent to another party 17 BKAF3063_A122 . IP to PPE – may be evidenced by commencement of owner-occupation. PPE to IP .TRANSFER Transfer of assets to or from IP. or upon completion of the construction of self-constructed property. Should be made when and only when there is a change in use (para 57).may be evidenced by the end of owneroccupation. IP to inventories (view to sale) vs.
BKAF3063_A122 18 . or end of construction or development. for a transfer from investment property to inventories. evidenced by: : a) commencement of owner-occupation.. for a transfer from owneroccupied property to investment property.change in use. end of owner-occupation. for a transfer from property in the course of construction or development (covered by MFRS 116) to investment property. for a transfer from b) c) d) e) investment property to owner-occupied property.. commencement of an operating lease to another party. Para 57. for a transfer from inventories to investment property. commencement of development with a view to sale..TRANSFER.
TRANSFER At the date of transfer: IP accounted for using the FV model to PPE or to Inventories = IP’s FV is the ‘deemed cost’ for subsequent accounting under MFRS116 or MFRS 102 (para 60). 19 BKAF3063_A122 . PPE to IP accounted for using the FV model = the difference between the CA of the PPE and its FV should be accounted for as a revalution surplus/deficit (para 61).
the difference between CA and FV should be recognized in the P&L (para 65). The same treatment applies from Inventories to IP (using FV model) para. 63 20 BKAF3063_A122 .TRANSFER At the date of transfer: PPE to IP (using FV model) upon completion of the construction.
21 BKAF3063_A122 .DERECOGNITION Provides that an IP should be derecognized (para 66): on disposal.Gain or loss should be recognized in P&L in the period of derecognition (para 69). or When the property is permanently withdrawn from use and no future economic benefits are expected from its disposal .
g. whether cost model or FV model Para 79 – additional disclosure requirements for cost model Para 78 – for IP under the FV model but its FV cannot be measured reliably 22 BKAF3063_A122 .DISCLOSURE REQUIREMENTS Para 75 – for all IP e.
If there has been no such valuation. property interests held under operating leases are classified and accounted for as investment property. and in what circumstances. the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business. when classification is difficult (see paragraph 14). c) d) e) the extent to which the fair value of investment property (as measured or 23 BKAF3063_A122 . b) if it applies the fair value model. the methods and significant assumptions applied in determining the fair value of investment property. disclosed in the financial statements) is based on 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.DISCLOSURE REQUIREMENTS Para 75: a) whether it applies the fair value model or the cost model. that fact shall be disclosed. whether.
iv. the cumulative change in fair value recognised in profit or loss on a sale of investment property from a pool of assets in which the cost model is used into a pool in which the fair value model is used (see paragraph 32C). and iii. rental income from investment property. BKAF3063_A12 2 24 . ii. f) the amounts recognised in profit or loss for: i. direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.DISCLOSURE REQUIREMENTS Para 75: .. construct or develop investment property or for repairs. g) the existence and amounts of restrictions on the realisability of investment h) contractual obligations to purchase. property or the remittance of income and proceeds of disposal. maintenance or enhancements. direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period.
END OF TOPIC 4 References: MFRS 140.Inv Property Ng Eng Juan 2010 25 BKAF3063_A122 .
This action might not be possible to undo. Are you sure you want to continue?