PAS 40

Investment Property
 Investment properties are
Owner-occupied (used passive
generally for owninvestments and
operations – e.g. admininsignificant,
involve purposes) if no ancillary
What is an properties are services
EXCLUDED from other than the
to tenants
investment property.
Investment Property? provision of rental space.

If there is a property partially

On the other used
hand, PPE are used in
-is property (land or a building as an investmentthe property and as
production or an
supply of goods or
owner occupied services
property,tothey shall
customers, and therefore
or part of a building or both) be accounted for involves
separately.
the provision of significantly
held by the owner or by the more services than for investment
lessee under a finance lease to However, if properties.
they cannot be
separated, the owner occupied space
earn rentals or for capital should be not significant in order
In order for ato property to be
appreciation or both. treat the wholeclassified
property as an
as investment property, IAS
investment property.
40, paragraph 11 is clear that ancillary
services provided to tenants must
-an investment property be insignificant to the arrangements
generates cash flows largely as a whole, otherwise the property is
considered owner-occupied PPE.
independently of the other
assets held by an entity. 02
 The ff. are classified as investment
property:

• Land held for capital appreciation

• Land held for currently
undetermined use
• Building leased out under an
operating lease
• Building is vacant but planned to be
leased out under operating lease.
• Land being developed to be used
as an investment property in the
future. 03
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Recognition and Initial Measurement
Items of investment property should be recognized as assets
when it is probable that:
 The future economic benefits associated with the asset
will flow to the enterprise; and
 The cost of the asset can be measured reliably.

Measurement at Recognition – Investment property shall

be initially recorded at its cost.
(i.e. acquisition costs plus all directly attributable costs in bringing the
asset to the condition necessary for it to be capable of operating in the
manner intended by the management; same approach as we’ve
discussed in PAS 16) 4
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Measurement Subsequent to Initial Recognition

PAS 40 allows the choice of accounting
policy for investment property:
 Cost Model - carried at cost less
any accumulated depreciation
Under cost model, changes in FV are
NOT recognized. Depreciation is
recorded in P/L

and any accumulated

impairment losses.
 Fair Value Model – carried at
fair value, with the gain or loss
Under FV model, only changes in FV
arising from a change in the fair are recognized. NO depreciation is
value to be recognized in profit recorded.

or loss for the period in which it

arises
 Additional Notes:
• If an investment property is rented out to an affiliate under an (e.g. a parent rented its
property to a subsidiary):

 On the individual F/S, it is an investment property

 On the consolidated F/S, it is presented under PPE (because as a whole, in effect, the
property is owner occupied)

• The accounting policy as to measurement shall be applied to ALL of the items under
investment properties.

• A property shall be accounted and continually accounted for PAS 40 as long as it meets
the criteria set to be classified as an investment property. Otherwise, the item shall be
derecognized and transferred to another classification (e.g. due to change of use, it may
be transferred to other assets like PPE)
 Additional Notes:
FROM TRANSFERRED CATEGORY TREATMENT
Fair value at the change of use is the
Investment property carried at fair value Owner-occupied property or inventories 'cost' of the property under its new
classification
Investment property under the cost No change the carrying amount of the
Owner-occupied property or inventories
model property transferred

Difference between the fair value at the

Investment property under construction Completed investment property that will date of transfer and the previous
or development be carried at fair value carrying amount should be recognized in
net profit or loss

Difference in carrying amount and fair

Owner-occupied property Investment property carried at fair value
value as revaluation under PAS 16

Difference in carrying amount and fair

Inventories Investment property at fair value
value is recognized in profit or loss.
 PFRS 6
Exploration for and Evaluation of Mineral
Resources 8
PFRS 6: What’s it about?
Exploration for and evaluation of
mineral resources means the search
for natural non-regenerative
resources for extraction. (i.e. wasting
assets, natural resources)

WASTING ASSETS are natural resources

property in the form of land containing
mineral deposits, precious stones and metals
or trees to be harvested as logs and lumber
with a limited life and will be subject to
depletion using the production method.

However, due to the nature of their

acquisition, there maybe unique costs
associated with it.
 What are the costs associated with wasting assets?
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ACQUISITION COST - Purchase price of the property.

EXPLORATION COST - Cost incurred to locate the minerals and other resources beneath the surface of
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the property.
 PFRS 6 permits the entity to create its own accounting policy in
capitalizing Exploration and Evaluation Assets.

DEVELOPMENT COST - Cost incurred to be able to extract the minerals and other resources that has
The picture can't be display ed.

been located through the successful exploration.

 Cost of tangible equipment for development is NOT capitalized as part
of wasting asset but is a separate PPE.
 Intangible development cost is capitalized as part of the wasting asset.
RESTORATION COST - (e.g. to
Future cost to be paid drilling rights)
restore the property back to its original condition but
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recorded as a provision (liability that is estimated) at its present value (somewhat similar to estimated
dismantling costs)
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Are these activities considered as

‘Exploration and Evaluation’?

Technical feasibility
Entity obtained and commercial
legal right to viability becomes
explore a property demonstrable

Before legal After technical

right to After legal right to explore feasibility and
explore is is obtained and before commercial viability
acquired technical feasibility and
commercial viability (Development Cost)

Example of Exploration Costs:

 Acquisition of rights to explore
 Topographical, geological, geochemical and geophysical studies
 Exploratory drilling
 Trenching
 Sampling
Accounting for Exploration Costs
Exploration for natural resources may result in
either a success or failure. Either way, the ff.
methods of accounting are used in practice:
 SUCCESSFUL EFFORT METHOD – those
only directly attributable to the successfully
discovered natural resource are capitalized.
 FULL COST METHOD – all exploration
costs, whether attributable to successful
attempts or not, are capitalized.

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 Additional Notes: Depletion

• Depletion is the systematic allocation of the depletable amount of the wasting asset over
the period from which there’s removal, extraction or exhausting of natural resources.

• Normally, depletion is computed using units of output method (i.e. Number of units to be
produced or extracted)

• If there are changes to the number of units of resources to be extracted, this should be
treated as changes in accounting estimate and applied prospectively (same with other PPE)

• Mining equipment which are separately capitalized from the wasting asset (i.e. mining
property used to extract minerals are separately debited under PPE) and would have no
future use beyond the extraction of a certain wasting asset should be depreciated over the
useful life of the equipment or useful life of the wasting asset whichever is shorter.
 PFRS 5
Non-current Assets Held for Sale
and Discontinued Operations
Noncurrent assets held for sale
• Are noncurrent assets whose carrying value of the
asset is to be recovered principally through a sale
transaction rather than continuing use
• The asset is available for immediate sale and sale is
highly probable.

 Committed to a plan to sell the asset (or disposal group)

 Initiates active program to locate a buyer
 The asset (or disposal group) must be actively marketed for
sale at a price that is reasonable in relation to its current
fair value.
 The sale should be expected to qualify for recognition as a
completed sale within one year from the date of
classification
 Actions required to complete the plan should indicate that
it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn 15
Measurement of asset held for sale
PFRS 5 requires that a noncurrent asset held for
sale or a disposal group to:
Be measured at the LOWER of the carrying
amount and fair value less cost of disposal***
 NOT depreciated

***Notes:
• any write down is an impairment loss
• consequently, an increase is a reversal of
impairment
• gain on reversal must NOT EXCEED the previous
impairment loss recognized.
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 Additional Notes:

• Abandoned property is NOT held for sale (refer to the qualifications on slide
15). Abandoned property may still be used to recover its remaining carrying
amount.

• The item to be held for sale maybe a DISPOSAL GROUP:

 A 'disposal group' is a group of assets, possibly with some associated
liabilities, which an entity intends to dispose of in a single transaction.
 The measurement basis required for non-current assets classified as
held for sale is applied to the group as a whole.
 The assets and liabilities are still presented SEPARATELY. (i.e. not offset)
Discontinued Operations
• A discontinued operation is a component
of an entity that either has been disposed
of or is classified as held for sale
Operations and cash flows that can be clearly
distinguished, operationally and for financial
reporting purposes, from the rest of the entity.

Why do we need to distinguish

discontinued operations?
Just like the separate presentation of NCA
HFS and the assets and liabilities under
disposal groups, the financial performance
and cash flows of disposal groups are
presented separately to inform users what
items in the F/S would ‘discontinue’.
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 How to present performance in discontinued operations
separately?

On the statement of comprehensive income:

• Profit or loss of the discontinued operation Single post-tax
• Gain or loss recognized on the measurement to fair value less cost to sell amount
• Gain or loss on disposal of the assets or disposal group(s)

On the statement of cash flows:

• The net cash flows attributable to the operating, investing, and financing activities of a discontinued
operation shall be separately presented on the face of the statement of cash flows or disclosed in the notes.
What if there’s a change:
It’s not held for sale anymore
If it’s not held for sale anymore, then stop
treating it as such and reclassify.
In reclassifying the asset, it should be
measured at the LOWER of***:
Its carrying amount as if it was not
reclassified as held for sale (e.g. as if we
continued to use PAS 16 up to now)
Its recoverable amount at the date it
ceases classification as held for sale

***all adjustments in value are carried to profit

or loss
 THANK YOU!
REFERENCES:
 Cabrera, E., Ocampo, R., & Cabrera, G. (2018).
Conceptual Framework and Accounting
Standards. Manila: GIC Enterprises.
 Valix, C., Peralta, P., & Valix, C. (2017). Financial
Accounting Part Series. Manila: GIC Enterprises.
 https://www.bdo.com.au/en-au/accounting-
news/accounting-news-october-2018/common-
errors

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