UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA

CALAMBA CAMPUS, BRGY. PACIANO RIZAL

CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 18 – PAS 40: INVESTMENT IN PROPERTIES EDMUND E. HILARIO, CPA, MBA

FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
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INVESTMENT PROPERTY However, if the services provided are a more
significant component of the arrangement, the
A. Definition of terms
property is treated as owner-occupied property. For
Investment property is defined as property (land or
example, if entity owns and manages a hotel,
building or part of a building or both) held by an
services provided to guests are a significant
owner or by the lessee under a finance lease to earn
component of the arrangement as a whole.
rentals or for capital appreciation or both. In other
Therefore, the owner-managed hotel is treated as
words land and building can qualify as investment
owner-occupied property, rather than investment
property. An equipment or any movable property
property.
cannot qualify as investment property.

D. Property leased to an affiliate

An investment property is not held:
From the perspective of the individual entity that
a. For use in the production or supply of goods or
owns it, the property leased to another subsidiary or
services or for administrative purposes.
its parent is considered an investment property.
b. For sale in the ordinary course of business.
However, from the perspective of the group as a
whole and for purposes of consolidated financial
The property held by an owner for use in the
statements, the property is treated as owner-
production or supply of goods or services, or for
occupied property.
administrative purposes is known as owner-occupied
property.
E. Recognition of investment property
Investment property
B. Examples of investment property
Investment property shall be recognized as an asset
a. Land held for long term capital appreciation.
when:
b. Land held for a currently undetermined use.
a. It is probable that the future economic benefits
For example, if an entity has not determined that
that are associated with investment property
it will use the land either as owner-occupied
will flow to the entity.
property or for short-term sale in the ordinary
b. The cost of the investment property can be
course of business, the land is considered to be
measured reliably.
held for capital appreciation and therefore
investment property.
F. Initial measurement of inventory property
c. Building owned by the reporting entity lease out
An investment property shall be measure initially at
under an operating lease.
its cost. Transaction costs shall be included in the
d. Building that is vacant but is held to be leased
initial measurement.
out under an operating lease.
e. Property that is being constructed or developed
The cost of a purchased investment property
for future use as investment property.
comprises the purchase price and any directly
attributable expenditure. Directly attributable
C. Partly investment and party owner-occupied
expenditure includes professional fees for legal
Certain properties may include a portion that is held
services, property transfer taxes and other
to earn rentals or for appreciation and another
transaction costs.
portion that is held for manufacturing or
administrative purposes. If these portions could be
G. Costs excluded from cost of investment property
sold or leased out separately, an entity shall account
a. Startup cost unless necessary to bring the
the portions separately as investment property and
property to the condition necessary for its
owner-occupied property. If the portions could not
intended use.
be sold separately, the property is investment
b. Operating loss incurred before the investment
property if only an insignificant portion is held for
property achieves the planned level of
manufacturing or administrative purposes.
occupancy
c. Abnormal amount of wasted material, labor or
When ancillary services are provided by the entity to
other resources incurred in constructing or
the occupants of the property and these services are
developing the property.
a relatively insignificant component of the
arrangement, the property is treated as investment
H. Subsequent measurement of Investment in property
property. An example would be where the owner of
An entity shall choose either of the following models
an office building provides security and maintenance
as the accounting policy and shall apply that policy to
services to the lessees. The building being leased out
all of the investment property:
as offices is investment property.
a. Fair value model – The investment property is
carried at fair value.

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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 18 – PAS 40: INVESTMENT IN PROPERTIES EDMUND E. HILARIO, CPA, MBA

FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
Any changes in fair value are included in profit If the entity decides to measure the investment
or loss. property under the fair value model, the changes in
b. Cost model – The fair investment property is fair value from year to year are recognized in profit
carried at cost less any accumulated or loss. No depreciation is recorded for the
depreciation and any accumulated impairment investment property. The net gains and losses from
losses. fair value adjustments shall be disclosed.

I. Fair value of investment in property M. Transfers of investment property

Fair value of an asset is the price that would be
received to sell an asset in an orderly transaction
between market participants at the measurement
date. The price in the principal market used to
measure fair value shall not be adjusted for
transaction cost.
Equipment such as lift or air-conditioning is often an
integral part of a building and is generally included in
the fair value of the investment property. If an office
is leased on furnished basis, the fair value of the
office generally includes the fair value of the furniture
because the rental income relates to the furnished
office. The fair value of investment property
excludes prepaid or accrued operating lease income.
N.
J. Inability to determine fair value reliability
In exceptional cases, when an entity first acquires an
investment property. Or when an existing property
becomes investment property because there has
been a change of use, there may be clear evidence
that the fair value of the investment property cannot
be determined reliably on a continuing basis. Under
such exceptional cases, PAS 40, paragraph 53,
mandates that then entity shall measure such
investment property using the cost method until the
disposal of investment property.
Moreover, under exceptional cases only, the residual
value or the investment property shall be assumed to
be zero. PAS 40, paragraph 54, states that an entity
that uses the fair value model shall continue to
measure other investment property at fair value,
notwithstanding the fact that one investment
property is carried using the cost model due to
exceptional cases.
O.
K. Cost model
If the entity decides to measure the investment
property under the cost model, the asset shall be
carried at cost less accumulated depreciation and any
accumulated impairment loss. Fluctuations in the fair
value or the investment property from year to year
are nor recognized.
P.
Instead, the annual depreciation and any impairment
of the investment property are charged against profit
or loss for the year.
L. Fair value model
Transfers to and from investment property shall
made only when there is a Change of use evidenced
by:
a. Commencement of owner occupation – transfer
from investment property to owner-occupied
property.
b. Commencement of development with a view to
sale – transfer from investment property to
inventory.
c. End of owner occupation – transfer from owner-
occupied property to investment property.
d. Commencement of an operating lease to another
entity – transfer from owner-occupied property
to investment property.
Measurement of transfers
1. When the entity Cost model, transfer between
investment property, owner-occupied property
and inventory shall be made at carrying
amount.
2. A transfer from investment property carried at
fair value to owner-occupied property or
inventory shall be accounted for at fair value
which becomes the deemed cost for subsequent
accounting.
3. If owner-occupied property is transferred to
investment property that is to be carried at
fair value, the difference between the fair value
and the carrying amount of the property shall be
accounted for as revaluation of property, plant
and equipment.
4. If an inventory transferred to investment
property that is to be carried at fair value,
the difference between fair and carrying amount
shall be included in profit or loss.
Derecognition of investment property
An investment property shall be derecognized:
a. On disposal
b. When the investment property is permanently
withdrawn from use.
c. When no future economic benefits are expected
from the investment property.
Disposal of investment property
Gain or loss from disposal of investment property
shall be determined as the difference between the net
disposal proceeds and the carrying amount of the
asset.

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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 18 – PAS 40: INVESTMENT IN PROPERTIES EDMUND E. HILARIO, CPA, MBA

FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
Q. Disclosures related to investment property
1. Whether the entity uses the cost model or fair
value model of measuring investment property.
2. The amount of rental income for the period along
with the related expense.
3. Restrictions on the investment property either
through rentals or sale proceeds.
4. Contractual obligations to purchase or construct
investment property.

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