Investment Property(IAS 40)

Presented by
Snehasish Barua, FCA
What are we going to talk about?

1. Objective
2. Definition
3. Examples
4. Recognition
5. Initial measurement
6. Subsequent measurement
7. Retirement and Disposals
8. Disclosure
 Objective

By the end of this session you will:

• Understand how investment property is defined

• Classify property as investment property or as PPE
• Understand how investment property should be
accounted for
• Be aware of the disclosure requirements for investment
properties
 Definition

• Property held for

 Rentals
 Capital appreciation
• Property held by a lessee under an operating lease
that otherwise meets definition of investment
property
 Lessee must use fair value model
 Property-by-property basis
• Not property held for
 Use in production, supply of goods / services or
for administration
 Sale in ordinary course of business
 Not investment property (2)

property under employee occupied property under

finance lease property initial development

property
IAS 16

lease property once developed:

IFRS 16 IAS 16 IAS 40
Not investment property (3)

Mineral rights,
Biological assets
exploration/extraction

IAS 41 IFRS 6
 Examples of investment property

• Land held for long-term capital appreciation

• Investment property being redeveloped
- For continued use as investment property
• Land held for undetermined future use
• Building owned and leased out
- Including vacant building that will be leased out under
operating lease
Dual purpose – able to split

owner rental
occupied income

IAS 16 IAS 40
 Dual purpose – unable to split
occupied
owner

rental income IAS 40

owner rental
IAS 16
occupied income
 Ancillary services
services

rental income IAS 40

rental
services IAS 40
income

IFRS 15
 Recognition

• Initially, measure at cost

• Include transaction costs
• Exclude start-up costs
- Unless necessary to bring to working condition
• Exclude initial operating losses
• Transfer from IAS 16 to IAS 40:
- Cost = cost under IAS 16 when construction is complete
• Property held under lease:
- Cost according to IFRS 16
 Initial measurement

• Investment property recognised as an asset when:

- It is probable that future economic benefits associated
with investment property will flow to enterprise, and
- Cost of investment property can be measured reliably
 Subsequent measurement

Apply choice to all investment property

Fair value Cost

• Do not deduct disposal costs • As per IAS 16
• Changes in income statement • Depreciate
• Exemption if cannot reliably • Impairment losses
determine on ongoing basis
 Test your knowledge

Test your Knowledge 1.docx

 Measurement at fair value, if
no active market

Include Exclude
Current market conditions Estimates based on a
Current lease typical arrangements
arrangements and Transaction cost of sale
expected cash inflows and Double-count of assets
outflows and liabilities
Expected cash outflows
for improvement
Expected cash inflows
after improvement
 Transfers to investment
property carried at FV (1)

owner occupied inventory initial development

IAS 16 IAS 2 IAS 16

investment investment investment

property property property

fair value fair value fair value

(revaluation) (income statement) (income statement)
Transfers from investment
property carried at FV (2)

investment
property

owner occupied inventory

IAS 16 IAS 2

fair value becomes

new cost basis
 Test your knowledge

Test your Knowledge 2.docx

 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 as income or expense
 Key disclosures – both
models (1)
• 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
• Comparative information for all disclosures
 Key disclosures (2)

• 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
Questions

AUDIT  TAX  CONSULTING

 No part of this presentation may be reproduced, stored in a
retrieval system or transmitted in any form by any means electronic,
mechanical, photocopying, recording or otherwise without
prior permission from the presenter.

This presentation is intended to provide information, but is not a

substitute of legal or accounting advice.
Presenter’s Contact Details

Snehasish Barua, FCA (ICAB), ACA (ICAEW)

Partner
Snehasish Mahmud & Co
Chartered Accountants
+8801819319319
snehasish@smac-bd.com
www.smac-bd.com