FR - Accounting for transactions in financial

statements
Tangible Non-current Assets IAS40 - Part 2

MEASUREMENT AT INITIAL RECOGNITION:

IAS 40 requires investment property to be initially measured at cost:

- If it is purchased, the cost relates to the purchase price as well as any directly attributable expenditures
(professional fees, taxes payable, other transaction costs);
- If it is self-constructed, the cost relates to all costs incurred until the asset has reached a condition
necessary for it to be capable of operating in the manner intended by management.

MEASUREMENT AFTER INITIAL RECOGNITION:

Companies need to select one of the following methods and apply it consistently across their entire investment
property portfolio:

a) The cost model. Under the cost model, the carrying amount of the asset is determined as its cost less any
accumulated depreciation and less any accumulated impairment losses.

Note: Even if a company chooses to account for its investment property portfolio under the cost approach, it
still needs to disclose the fair value of its investment properties in the notes to the financial statements.

b) The fair value model. Under this approach, the asset is carried at its fair value, as determined at the end of
the period, with any gains or losses arising from changes in fair value being taken to that period’s profit or
loss. No depreciation is charged under this approach.

Note: If the company is unable to reliably measure the property’s fair value, that specific asset will be
accounted for under the cost model (this is an exceptional case).

IFRS 13 defines the fair value of an asset as the price that would be received to sell the asset in an orderly
transaction between market participants at the measurement date.
It is possible to voluntarily change the adopted measurement method. However, IAS 40 openly discourages
changes from the fair value model to the cost model, because it is highly unlikely that such a move would result
in a more relevant presentation of the company’s financial position.

IAS 40 vs IAS 16:

There are similarities and differences between the fair value model allowed for investment property under IAS 40
and the revaluation model allowed for property, plant and equipment under IAS 16:

IAS 40 model: Carrying amount = Fair value

IAS 16 model: Carrying amount = Fair value - (depreciation + impairment losses)

Similarities: Both models are based around the concept of fair value, which has a universal definition contained
in IFRS 13.

Differences:

Fair value model Revaluation model

- No depreciation to be charged;
- No review for impairment;
- Changes in FV are taken to P&L (impact on
RE);
- The chosen model is used consistently
across the entire portfolio.
- Depreciation to be charged;
- Asset is reviewed for impairment;
- Changes in FV are taken to OCI (no
impact on RE);
- Applied to selected classes of PPE.

TRANSFERS TO AND FROM INVESTMENT PROPERTY:

In reality, investment property is often recognised as a result of transfers from property, plant and equipment or
inventory:

1) Transfer from PPE to investment property:

The property is simply transferred at its current

The cost model is applied
The fair value model is applied
carrying amount.
The asset must first be revalued using the rules
set out in IAS 16. Then, the actual transfer to
investment property is made.

Note: There is no immediate gain to be recognised in P&L from moving an asset from property, plant and
equipment to investment property.

2) Transfer from investment property to PPE:

 The asset is transferred into PPE at its current
The cost model is applied
carrying amount.
The asset’s fair value is first updated, using the
rules in IAS 40 (any gain or loss is going to
The fair value model is applied
P&L). Subsequently, the asset is transferred into
PPE at fair value.