International Accounting

Standards

IAS 40 Investment property

Recognition, measurement and
disclosure of investment property
Investment Property
• Property (land or a building – or part of a building –
or both) held ( by the owner or by the lessee under the
finance lease) to earn rentals or for capital
appreciation or both, rather than for:
• use in the production or supply of goods or services or
for administrative purposes; or
• sale in the ordinary course of business

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Owner-occupied property
• Property held (by the owner or by the
lessee under finance lease) for use in the
production or supply of goods or services
or for administrative purposes.

Investment property is distinguished from

owner-occupied property (and from inventories
and construction/development assets)

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Multipurpose Property
• Property that includes portions held for both
investment and other purposes
• For example, an office building where nine of the
ten floors are occupied as an entity’s head office
while the 10th floor is leased out to a third party
under an operating lease
• The portions must be accounted for separately if
they can be separately sold or leased out under a
finance lease

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Continued-Multipurpose…
• If the portions of the property are not separable, the
property should be accounted for as investment
property only if the owner-occupied portion is
insignificant
• How to account for the land element? No specific
guidance in IAS 40
• Logical approach is to account for the land either
under IAS 16 or IAS 40 based on the most
significant use of the property

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Services to Property Occupants
• When services are provided to the occupants of a
property, the property qualifies as investment
property only if the relevant services are
insignificant when compared to the total revenue
expected from the property
• For example, an office building where security
and maintenance services are provided to lessees
is accounted for as investment property

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Continued-Services…
• There is no specific guidance on
determining significance. Judgment is
needed, and entities should develop
specific consistent criteria to define their
investment property, disclosing it
whenever classification of investment
property is not straightforward.

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Investment Property

Investment property should be recognized as

an asset when, and only when
• Future economic benefits are probable
• Cost is reliably measurable

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Measurement

• Should be measured at cost

• Transaction costs should be included

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Subsequent Expenditure
Repairs and Maintenance
• Similar to IAS 16
• Repair and maintenance costs expensed as
incurred, unless the expenditure
• Will generate increased performance as compared
to that originally assessed, or
• To replace a component that was recognized at the
outset as having a shorter useful life than the rest
of the property

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Continued-Subsequent…

• Capitalize only when the original property

is enhanced by increased capacity or
reduced
• Normal wear and tear are treated as repairs
and maintenance.

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Subsequent Measurement
Fair value model
• All property
• Gains/losses to profit or loss for period
• Actual market at balance date (not past or future)
Cost model
• Per IAS 16 Property, Plant and Equipment
• Cost less accumulated depreciation

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IAS 40 Investment Property
• Inability to Measure Fair Value Reliably
(from acquisition)
• Use IAS 16 cost model for particular property
• Until disposal, no reversion to fair value
• If fair value used, must continue to
disposal even if
• Transactions less frequent or market price less
readily available

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Transfers
• To or from owner-occupied
• To inventory upon development
commencing
• From inventory upon commencement of
operating lease to another party
• From construction or development to
investment property

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Continued-Transfers
• From investment property to owner-occupied
or inventories
• Use fair value at transfer as cost for IAS 16 or IAS 2
• To Investment property from owner-occupied
• Change from cost to fair value – revaluation per IAS
16
• To investment property from inventories
• Change from cost to fair value – take to profit or loss
• From (self) construction or development to
investment property
• Change from cost to fair value – take to profit or loss
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Investment Property
• De-recognition
• De-recognize when disposed of or withdrawn
from use and no future economic benefits are
expected from its disposal
• Disposal
• Gains or losses to profit or loss (except if IAS 17
leases demands otherwise)
• Measures as difference between carrying amount
and proceeds

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Disclosures

• General
• For Fair Value model
• For Cost Model

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Continued-Disclosure
General disclosures
• Methods and significant assumptions used to
determine fair value of investment property
• Extent to which the valuations was performed by
external independent valuers
• Rental income and direct operating expenses
generated from investment property
• Reconciliation of their carrying amount at the
beginning and end of the period
• Investment property carried at cost, depreciation
methods and the useful lives/depreciation rates
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Continued-Disclosure
Fair value model
• Reconciliation of the carrying amount of
investment property at the beginning and end of
the period including fair value gains and losses
• If fair value is not reliable, extensive information
is required
• Separate reconciliation of carrying amounts, a
description of the property and an explanation of
why fair value cannot be determined
• Disclose a range of fair value estimates within
which fair value of the property is likely to lie.

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Continued-Disclosure
Cost model
• Reconciliation of the carrying amount of
investment property at the beginning and
end of the period
• Instead of fair value gains and losses
required under the fair value model,
include depreciation and impairment
charges for the period
• Disclose fair value of investment property

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Transitional Provisions
• Rules under the fair value model
• Contrast with IAS 8, which requires comparative
information for the prior period to restated
• IAS 40 requires adjustment of the opening balance
of retained earnings only for the current period
• Normal IAS 8 rules apply to investment
property accounted for under the cost
model.

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IAS 40 Investment Property

Applies for period on or after 1 January 2001

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