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IAS 40

Investment Property
Advanced Baseline

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Learning objectives
By the end of this session you should know: How to identify an investment property How investment property should be measured The key disclosure requirements

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Investment Property - Definition


Property = land or a building (or part of a building) or both Investment property is property held for Rentals Capital appreciation Not property held for Use in production, supply of goods / services or for administration Sale in ordinary course of business

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Investment Property Operating lease option


Property held by a lessee under an operating lease may be classified and accounted for as investment property if, The property otherwise meets the definition of an investment property, and Lessee uses the fair value model. Option available on a property-by-property basis

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Not investment property (1)

Sale in ordinary course of business

Owner-occupied

Constructed for third party

Inventory IAS 2

Property IAS 16

Contract IAS 11

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Not investment property (2)

Property under finance lease

Employee occupied property

Lease IAS 17

Property IAS 16

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Not investment property (3)

Biological assets

Mineral rights, exploration/extraction

IAS 41

IFRS 6

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Examples of investment property


Land held for long-term capital appreciation Land held for undetermined future use Building owned and leased out Including vacant building that will be leased out under operating lease Property under construction or development For future use as investment property Property being redeveloped For continued use as investment property

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Dual purpose Able to split

Owner occupied

Rental income

IAS 16

IAS 40

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Dual purpose Unable to split

owner occupied

rental income

IAS 40

owner occupied

rental income

IAS 16

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Ancillary services

services

rental income

IAS 40

services

rental income

IAS 16

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Hotels
Owner-managed = owner-occupied IAS 16 3rd-Party-managed = involves judgment: Passive investor = investment property Significant exposure to operating cash flow variation = owner-occupied IAS 16 Disclose classification criteria

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Recognition
Investment property recognised as an asset when: It is probable that the future economic benefits associated with the investment property will flow to entity, and The cost of the investment property can be measured reliably

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Initial measurement
Initially, measured at cost (transaction costs included): Purchased or self-constructed investment property:
Purchase price Any directly attributable expenditure (e.g., professional fees for legal services, property transfer taxes) If not ready for its intended use on acquisition, then consider if requirements of IAS 23 Borrowing Costs should be applied

Property held under lease:


Cost according to IAS 17.20

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Subsequent measurement (1)

Fair value Changes in profit or loss Exemption if cannot reliably determine on ongoing basis

Cost model As per IAS 16 Depreciate Impairment losses

Apply choice to all investment property Change from FV option to cost option not allowed

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Subsequent measurement (2)


Property under construction / development: Fair value model
If fair value is determinable reliably, then it should be followed If fair value is not determinable reliably but is expected to be so when construction is complete, then at cost until the fair value is determinable reliably

Cost model
Follow IAS 16 requirements

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Measurement of fair value, if no active market

Include
Current market conditions Current lease arrangements and expected cash inflows and outflows

Exclude
Estimates based on atypical arrangements Transaction cost of sale Double-count of assets and liabilities Expected cash outflows for improvement Expected cash inflows after improvement

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Transfers to investment property carried at fair value


Owner occupied IAS 16 Inventory IAS 2 Investment Property at cost

Investment Property at FV FV adjustment = Revaluation under IAS 16

Investment Property at FV

Investment Property at FV

FV adjustment = Profit or loss

Change in policy = Equity

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Transfers from investment property carried at fair value


Investment Property

Owner occupied IAS 16

Inventory IAS 2

Fair value becomes new cost basis


2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Retirements and disposals


Eliminate items of investment property On disposal, or When permanently withdrawn from use and no future benefits expected through disposal Difference between carrying amount and net disposal proceeds recognised in profit or loss

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Case study

2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Key disclosures Both models


Criteria to distinguish between investment property and owner-occupied property and inventory Methods, significant assumptions to determine fair value Extent to which independent valuer involved and any adjustments to the valuation obtained Rental income Direct operating expenses From investment property generating rental income From vacant investment property Material contractual obligations, including repairs, maintenance
2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Key disclosures
Fair value model Reconciliation Information on property for which fair value cannot be determined Whether properties held under operating leases have been classified as investment property Cost model Reconciliation Fair value, or Information on property for which fair value cannot be determined
2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Key learning points


Investment property is held for rentals or capital appreciation Typical classification issues: dual-use property / ancillary services Recognised initially at cost Subsequently all investment property should be measured using either the fair value model or the cost model Fair value model with changes in fair value recognised in profit or loss Disclosure of the fair value of all investment property is required, regardless of the measurement model used
2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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