IAS 40 INVESTMENT PROPERTY

BY

Adeel Saleem

SCOPE

Para 2 of the standard sets the scope as

This Standard shall be applied in the recognition, measurement and disclosure of investment property.
Including

measurement in a lessees financial statements of investment property interests held under a finance lease and measurement in a lessors financial statements of investment property provided to a lessee under an operating lease.

INVESTMENT PROPERTY - DEFINED

Investment property is property (land or a buildingor part of a buildingor both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

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

Examples

land held for long-term capital appreciation land held for a currently undetermined future use a building owned by the entity and leased out under one or more operating leases. a building that is vacant but is held to be leased out under one or more operating leases.

RECOGNITION CRITERIA
Investment property shall be recognised as an asset when, and only when:

it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and the cost of the investment property can be measured reliably.

Similar requirement as specified in IAS - 16

MEASUREMENT AT RECOGNITION
An investment property shall be measured initially at its cost. Transaction costs shall be included in the initial measurement.

For Purchased Property: For Self-Constructed Property:

Cost includes purchase directly attributable costs

price

and

Cost is the cost at the date when the development or construction is complete Cost is the lower of the fair value of the property and the present value of the minimum lease payments

For Finance Leased Asset:

For MEASUREMENT AFTER RECOGNITION entity may use

COST MODEL

FAIR VALUE MODEL

COST MODEL
An entity using shall measure ALL of its investment property in accordance with

IAS 16 Property, Plant & Equipment requirements for that model, or IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for investment properties that meet the criteria to be classified as held for sale

EXCEPT

Investment property under operating lease shall be carried at the fair value

FAIR VALUE MODEL

An entity that chooses the fair value model shall measure ALL of its investment property at fair value EXCEPT where the fair value of the investment property is not reliably determinable on a continuing basis. Investment property under operating lease shall be recognised at the fair value

A gain or loss arising from a change in the fair value of investment property shall be recognised in profit or loss for the period in which it arises

the fair value of investment property shall reflect market conditions at the balance sheet date.

TRANSFERS
Transfers to, or from, investment property shall be made when, and only when, there is a change in use, evidenced by: commencement of owner-occupation, for a transfer from investment property to owner-occupied property;

commencement of development with a view to sale, for a transfer from investment property to inventories;

end of owner-occupation, for a transfer from owner-occupied property to investment property;

commencement of an operating lease to another party, for a transfer from inventories to investment property; or end of construction or development, for a transfer from property in the course of construction or development to investment property.

DEEMED COST FOR TRANSFERS

For a transfer from investment property carried at fair value to owneroccupied property or inventories, the propertys deemed cost for subsequent accounting shall be its FAIR VALUE AT THE DATE OF CHANGE IN USE. For owner-occupied property that becomes an investment property will be CARRIED AT FAIR VALUE, the entity shall treat any difference at that date of transfer between the carrying amount of the property and its fair value as a revaluation surplus or loss in accordance with IAS 16 For a transfer from inventories to investment property that WILL BE CARRIED AT FAIR VALUE, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss.

When an entity completes the construction or development of a selfconstructed investment property that WILL BE CARRIED AT FAIR VALUE, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss.

DISPOSAL
An investment property shall be derecognised on disposal, or; when the investment property is permanently withdrawn from use, or; no future economic benefits are expected from its disposal

Gains or losses arising from the retirement or disposal of investment property shall be the DIFFERENCE between the NET DISPOSAL PROCEEDS and the CARRYING AMOUNT of the asset and shall be recognised in profit or loss Compensation from third parties for investment property that was impaired, lost or given up shall be recognised in profit or loss when the compensation becomes receivable