DEPARTMENT OF ACCOUNTANCY

SCHOOL OF BUSINESS AND ACCOUNTANCY

HOLY ANGEL UNIVERSITY

Intermediate Accounting 1
INVESTMENT PROPERTY
Definition of Terms

Investment •Property held for rent or capital appreciation

Property •Not for sale or use in production

Owner-occupied
•Property held for production, supply of goods
Property
& services or administrative services

•Goods in various stages of being made ready

Inventory
for sale
Classification Alternative
Property held by lessee under operating lease may be classified as
investment property

Property must meet definition of investment property (held for

rent income or capital appreciation)

Lessee must recognise all investment property at fair value and

fair value disclosures made
 Not
Investment
Investment
Property
Property

Land held long-

Property held for
term capital
sale
appreciation
Building leased PAS 11
Examples of out under
Operating Lease
Construction
Contracts
Investment Investment
Property under
Owner-occupied
Property
Property construction
Land held for Land held for
undetermined undetermined
use use
 Investment • Insignificant portion used for
production/admin
Property • Insignificant ancillary services

Combinations Owner-
occupied
• Significant portion used for
production/admin

and Ancillary Property • Significant ancillary services

Services • Investment and owner-occupied

Separate portion can be sold separately
Portions • Account for them separately
Recognition
Investment property should be recognized as an asset when:

•it is probable that the future economic benefits that are

associated with the property will flow to the entity

•the cost of the property can be reliably measured

 Investment • Insignificant portion used for
production/admin
Property • Insignificant ancillary services

Measurement Owner-
occupied
• Significant portion used for
production/admin
Property • Significant ancillary services

Separate • Investment and owner-occupied

portion can be sold separately
Portions • Account for them separately
 Purchase
Price

Property / Direct
Transfer Expenditure
Taxes Measure at
cost
Initial including
transactio
Measurement n cost

Costs when
Legal fees construction
is completed
 Operating
losses before
planned level
of occupancy

Start-up costs Abnormal

waste

Excluded
 Fair value model

Investment property is re-measured at fair value,

which is the price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date.
 Cost model

After initial recognition, investment property is

accounted for in accordance with the cost model as set
out in PAS 16 Property, Plant and Equipment – cost
less accumulated depreciation and less accumulated
impairment losses.
Measurement after Recognition: Accounting Policy

Recognize gains or
losses in P&L every
period
Fair Value Model
Change from FV to
Cost Model not
Choose and Apply appropriate
to ALL Investment
Property Depreciation
method, useful life,
carrying amount
Cost Model

Disclose Fair Value

 commencement of owner-occupation (transfer from
investment property to owner-occupied property)

commencement of development with a view to sale

(transfer from investment property to inventories)

end of owner-occupation (transfer from owner-occupied

Transfers to property to investment property)
or from commencement of an operating lease to another party
Investment (transfer from inventories to investment property)

Property end of construction or development (transfer from

property in the course of construction/development to
Classification investment property
Rules applied for transfers between categories

Investment Property
@ Fair Value

PAS 16 should be applied up to PAS 16 should be applied up to

the date of reclassification. the date of reclassification.

the fair value at the

change of use is the 'cost'
of the property under its
Owner-occupied new classification Inventory
property
 When an entity completes construction/development of
an investment property that will be carried at fair value,
any difference between the fair value at the date of
transfer and the previous carrying amount should be
Rules applied recognized in profit or loss.

for transfers When an entity uses the cost model for investment
property, transfers between categories do not change the
between carrying amount of the property transferred, and they do
not change the cost of the property for measurement or
categories disclosure purposes.
Disposal
•Derecognise from balance sheet when no future economic benefit
expected

•Net disposal proceeds – carrying amount = profit/loss in period of

disposal

•Recognise compensation for impairment or loss in profit & loss

when receivable
 • whether fair value or cost model applied
Model • reasons for classifying property under operating lease as
investment property

• criteria to distinguish owner-occupied from investment

property
Value • methods and assumptions to calculate fair value
• market evidence to support fair value

Disclosure:
• whether or not a professional valuation was obtained
• restrictions on realizability (existence and amounts)

Fair Value Obligations • contractual obligations to develop, repair, maintain or

Obligations enhance investment property

Model & Cost Amounts in

• rental income
• direct operating expenses relating to rental income
Model Profit or
Loss
• direct operating expenses not related to rental income
• cumulative change in fair value from sale of asset at
cost to fair value pools
 •Reconciliation between carrying amount at beginning
and end of period
•Additions
•From acquisition
•From subsequent expenditure
•From acquisitions through business combinations
Disclosure: •Assets classified as held for sale
•Net gain or loss from fair value adjustments
Fair Value •Net exchange difference on translation
•Transfer to and from inventories and owner-occupied
(addt’l) property
•Significant adjustments to an outside valuation
 •Depreciation methods used
•Useful lives
•Gross carrying amount
•Accumulated depreciation and impairment loss at
Disclosure: beginning and end of period
•Reconciliation of carrying amount at beginning and end of
Cost Model period
•Additions
(addt’l) •From subsequent expenditure
•From acquisitions
 •Assets classified as held for sale
•Depreciation
•Impairment loss recognised and reversed
•Net exchange differences on translation
•Transfers to and from inventories and owner-occupied
Disclosure: property
•Fair value of investment property or
Cost Model •Description of property
(addt’l) •Reason why fair value cannot be determined
•Range of estimates in which fair value is likely to lie
Summary
• Investment property is held for rent or capital appreciation
• Measure initially at cost including transactions costs
• Choose fair value or cost model after initial recognition and
apply to all properties
• Recognize changes in fair value in profit & loss for the period
• Transfer when investment property becomes owner-occupied or
used in another way
• Derecognize when disposed and recognize profit or loss on
disposal
• Make detailed disclosures and reconciliations of opening and
closing carrying values