PAS 40

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property held by an owner or by the lessee under a finance lease
investment property
to earn rentals or for capital appreciation or both
True/False: Only land and equipment can qualify as investment
False
property.
The property held by an owner for use in the production or supply
of goods or services, or for administrative purposes is known as owner-occupied property
_
True/False: If an entity has not determined that it will use the land
either as owner-occupied property or for short-term sale in the
True
ordinary course of business, the land is considered to be held for
capital appreciation and therefore investment property.
True/False: Building that is vacant but is held to be leased out
False
under an operating lease is an owner-occupied property.
True/False: If the portions could not be sold separately, the prop-
erty is investment property if only an insignificant portion is held True
for manufacturing or administrative purposes.
True/False: When ancillary services provided are a more signif-
icant component of the arrangement, the property is treated as False
investment property.
From the perspective of the individual entity that owns it, the
property leased to another subsidiary or its parent is considered investment property
an _
From the perspective of the group as a whole and for the purposes
owner-occupied property
of consolidated financial statements, the property is treated as _
True/False: Investment property shall be recognized as an asset
when the cost of the investment property can be measured reli- False
ably.
True/False: An investment property shall be measured initially at
True
its cost plus transaction costs.
True/False: An entity shall choose either revaluation model or cost
False
model for the subsequent measurement of investment property.
True/False: The price in the principal market used to measure fair
True
value shall not be adjusted for transaction cost.
True/False: Equipment such as lift or air-conditioning is often an
integral part of a building and is generally included in the fair
value of the investment property while the fair value of the office False
generally excludes the fair value of the furniture because the
rental income relates to the furnished office.
True/False: The fair value of investment property excludes prepaid
True
or accrued operating lease income.
In exceptional cases, when the fair value of the investment prop-
erty cannot be determined reliably, the entity shall measure such cost method
using the _ until the disposal of the investment property.
True/False: Under exceptional cases only, the residual value of
True
the investment property shall be assumed to be zero.
True/False: Commencement of development with a view to sale
False
is a transfer from investment property to inventory.
True/False: When an entity uses the cost model, transfers be-
tween investment property, owner-occupied property, and inven- True
tory shall be made at carrying amount.
True/False: A transfer from IP carried at fair value to OO or
inventory shall be accounted for at fair value which becomes the True
deemed cost for subsequent accounting.

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 PAS 40
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If OO property is transferred to IP that is to be carried at fair value,
the difference between the FV and CA of the property shall be revaluation
accounted for as _ of PPE.
True/False: If an inventory is transferred to IP carried at FV, and
an IP under construction carried at FV, the remeasurement and True
difference shall be included in profit or loss.
True/False: The entity is not required to disclose the amount of
False
rental income for the period along with the related expense.
is the amount of cash or cash equivalents paid or the fair value
of other consideration given to acquire an asset at the time of its
acquisition or construction; or
cost
the amount attributed to that asset when initially recognized in
accordance with the specific requirements of other
Which of the following does not define investment property?

A) Property held to earn rentals

C) Property used in the production or supply of goods or services
B) Property held for capital appreciation
C) Property used in the production or supply of goods or services
D) A and C
Investment property is property (land or a building—or part of
a building—or both) held (by the owner or by the lessee as a
right-of-use asset) to earn rentals or for capital appreciation or
both, rather than for:

(a) use in the production or supply of goods or services or for true

administrative purposes; or

(b) sale in the ordinary course of business.

true/false?
Which of the following statements is true with regards to an
investment property?

a.) An investment property generates cash flows largely indepen-

dently of the other assets held by an entity

b.) The value in use of investment property is significantly higher

A
than that of owner-occupied property

c.) An investment property unlike owner-occupied property shall

not be depreciated over its useful life

d.) An investment property unlike owner-occupied property shall

always be measured at its historical cost
Investment property is held to earn rentals or for capital appreci-
ation or both. Therefore, an investment property generates cash false
flows largely dependently of the other assets held by an entity.
(independently)
true/false?
An investment property shall be measured initially at its
cost
__________.
Which of the following terms does this statement define: "the
amount of cash or cash equivalents paid or the fair value of
other consideration given to acquire an asset at the time of its
acquisition or construction"? fair value

Cost
Deemed cost

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 PAS 40
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Fair value
Present value
PAS 40 deals with recognition of lease income from investment
property
false
true/false?
If a property management company receives rentals from its
owned property, the building and land is considered investment
property. false

true/false?
Investment property is property, either land or a building, or part
of a building, held (by the owner or by the lessee under a finance
lease) to earn rentals or for capital appreciation or both. true

true/false?
Under what circumstance can a lessee classify a leased property
interest as investment property if it is an operating lease?

a.) Management believes it is more appropriate for the financial

statements.

b.) The lessee uses a fair value model and the property would b
otherwise meet the definition of an investment property.

c.) The rents and capital appreciation created from the property
are a substantial source of the firm's revenues.

d.)All of the above

Why is the building where a manufacturing company's factory is
located not considered investment property?

a.) The cash flows generated from the factory production as a

result of the building is independant from the cash flows generated
as a result of other assets.

b.) The cash flows generated from the factory production as a

b
result of the building is not independent from the cash flows
generated as a result of other assets.

c.) Historically the company has not seen the value of the building
appreciate and does not expect it to in the future.

d.) The company is planning on moving locations in the next 3

years.
When it is probable that the future economic benefits that are
associated with the investment property will flow to the entity and
the cost of the investment property can be measured reliably, the
property can be:

a.) Measured as an asset

a
b.) Measured as a liability

c.) Expensed in the income statement in the period of payment

d.) None of the above

Which of the following is not a transfer to, or from investment
property?

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 PAS 40
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a.) Commencement of owner-occupation
b.) End of owner-occupation
d
c.) Commencement of development with a view to sale
d.) Transfer from undetermined future use to operating lease
When an undertaking decides to dispose of an investment prop-
erty without development:

a.) It is reclassified as owner-occupied

c
b.) It is transfer to inventory
c.) It continues to treat the property as an investment
property
d.) None of above
Which one of the following is NOT TRUE concerning the treatment
of investment properties under PAS 40?

a.) Following initial recognition, investment property can be held

at either cost or fair value.

b.) If an investment property is held at fair value, this must be

applied to all of the entity's investment property. d

c.)An investment property is initially measured at cost, including

transaction costs.

d.) A gain or loss arising from a change in the fair value of an in-
vestment property should be recognized in other comprehensive
income.
Hook Ltd (Hook) purchases an investment property on 1 July
20X0 for $100 000. At 30 June 20X1, Hook determines the fair
value of the investment property to be $150 000. Hook's account-
ing policy is to measure investment properties at fair value.

Which one of the following journal entries is processed by Hook

on 30 June 20X1?

No entry is required

Dr. Investment property $50 000/Cr. Rental revenue $50 000

Dr. Investment property $50 000/Cr. Asset revaluation reserve $50

000

Dr. Investment property $50 000/Cr. Gain on revaluation (profit or

loss) $50 000
Anchor Ltd (Anchor) purchases an investment property on 1 July
20X0 for $100 000. At 30 June 20X1, Anchor determines the fair
value of the investment property to be $150 000. At 30 June 20X2,
the fair value of the investment property had fallen to $80 000.
Anchor's accounting policy is to carry investment properties at fair
value.

Which one of the following journal entries is processed by Anchor

on 30 June 20X2?
Incorrect
Dr. Asset revaluation reserve $70 000/Cr. Investment property $70
000

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 PAS 40
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Dr. Asset revaluation reserve $70 000/Cr. Investment property $70
000

Incorrect
Dr. Asset revaluation reserve $50 000/Dr. Loss on revaluation
(profit or loss) $20 000/Cr. Investment property $70 000

Dr. Asset revaluation reserve $50 000/Dr. Loss on revaluation

(profit or loss) $20 000/Cr. Investment property $70 000

Incorrect
Dr. Loss on revaluation (profit or loss) $50 000/Cr. Investment
property $50 000

Dr. Loss on revaluation (profit or loss) $50 000/Cr. Investment

property $50 000

Correct
Dr. Loss on revaluation (profit or loss) $70 000/Cr. Investment
property $70 000

Dr. Loss on revaluation (profit or loss) $70 000/Cr. Investment

property $70 000
Which TWO of the following properties fall under the definition of
investment property and therefore within the scope of IAS 40?
(i) Property occupied by an employee paying market rent
(ii) A building owned by an entity and leased out under an oper-
ating lease
(iii) Property being constructed on behalf of 3rd parties
(iv) Land held for long term appreciation
Which TWO of the following disclosures must be made when fair
value model is adopted?
(i) Net gains or losses from fair value adjustments
(ii) Useful lives or depreciation rates used
(iii) The amount of impairment losses recognized
(iv) Additions resulting from acquisitions through business com-
binations
An ______ is held primarily because it is expected to increase in
value over time (capital appreciation) or it is held to earn rentals. It
generates economic benefits for the entity because it might earn investment property
regular stream of income in the form of rentals or might be sold
at a profit.

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