PAS 40 INVESTMENT PROPERTY

PAS 40 prescribes the accounting and e. Property that is being constructed

disclosure requirements for investment or developed for future use as
property. investment property .

Investment property. The following are not investment

Investment Property - is land and/or properties:
building held to earn rentals or for capital a. Property acquired exclusively for
appreciation or both. sale in the near future or for
development and resale .
Investment property includes only land b. Owner-occupied property,
and building. It does not include any other including:.
type of asset. i. Property held for future use as
owner-occupied property ;
Investment property is held to earn rentals ii. Property held for future
or for capital appreciation or both . development and subsequent use
Maning, it generates its own cash flows as owner-occupiedproperty ;.
independently from the other assets of an iii. Property occupied by
entity and is not :. employees ( whether or not the
a. Owner - occupied property ( i.e. , employees pay rent at market
held for use in the production or rates ) ; and.
supply of goods or services or for iv. Owner-occupied property
administrative purposes ) . Owner - awaiting disposal .
occupied property is classified as c. Property that is leased out to
PPE ;. another entity under a finance
b. Held for sale in the ordinary course lease.
of business ( this is classified as
inventory ) ; or. Partly investment property and partly
c. Classified as " held for sale " under owner – occupied
PFRS 5 Non - current assets Held
for Sale and Discontinued A property may be partly held to earn
Operations. rentals or for capital appreciation and
partly owner-occupied. A common
Examples of investment property :. example is a building that is partly being
a. Land held for long - term capital rented out and partly being used as office
appreciation rather than for short - space .
term sale in the ordinary course of
business . Such properties are accounted for as
b. Land held for a currently follows:
undetermined future use .  the portions could be sold
c. A building owned by the entity ( or separately (or leased out
a right - of - use asset relating to a separately under a finance lease),
building held by the entity ) and they are accounted for separately.
leased out under one or more The portion being rented out under
operating leases. operating lease is classified as
d. A building that is vacant but is held investment property while the
to be leased out under one or more owner occupied portion is
operating leases . classified as PPE.

PAS 40 INVESTMENT PROPERTY

PAS 40 INVESTMENT PROPERTY
 If the portions could not be sold
separately, the entire property is
classified as investment property if
the owner-occupied portion is
insignificant. If the owner-occupied
portion is significant, the entire
property is classified as PPE.
Ancillary services to occupants.
When ancillary services are provided to
the occupants of a property held, the
property is classified as investment
property if the services are insignificant
to the arrangement as a whole. An
example is when the owner of an office
building provides security and
maintenance services to the building
tenants property.
If the services provided are significant ,
the entire is classified as PPE . An
example is services provided to hotel
guests in an owner - managed hotel. An
owner - managed hotel is.
classified as PPE rather than investment
property .
Investment property in consolidated
financial statements
A property that is leased by a member of
a group to another member ( parent or
subsidiary ) does not qualify as
investment property in the consolidated
financial statements because, from.
the group's perspective, the property is
owner-occupied.
However, the property is classified as
investment property.
in the lessor/owner’s individual financial
statements.
Recognition.
An investment property is recognized
when it meets the definition of an
investment property as well as the asset
recognition criteria of " probable future
PAS 40 INVESTMENT PROPERTY
economic benefits " and " reliable
measurement of cost . ".
Initial measurement.
An investment property is initially
measured at cost . The measurement of
cost depends on the mode of acquisition.
Acquisition by Purchase.
The cost of a purchased investment
property comprises the purchase price
and any directly attributable costs incurred
in bringing the asset to its intended
condition, e.g. , professional fees for legal
services, property transfer taxes and other
transaction costs.
If the payment is deferred, the cost is the
cash price equivalent. The difference
between this amount and the total
payments is recognized as interest
expense over the credit period unless it
qualifies for capitalization under PAS 23.
The cost of an investment property
excludes the following :
a. Start-up costs, unless they are
necessary to bring the property to
the condition necessary for it to be
capable of operating in the manner
intended by management ;
b. Operating losses incurred before
the investment property achieves
the planned level of occupancy; or
c. Abnormal amounts of wasted
materials , labor or other resources
incurred in constructing or
developing the property .
Exchanges of assets.
The measurement of an investment
property acquired in exchange for another
non - monetary asset depends on whether
the exchange transaction has commercial
substance or not .
a. With Commercial Substance - an
exchange has a commercial
substance if the entity's
PAS 40 INVESTMENT PROPERTY
subsequent cash flows are
expected to change as a result of
the exchange. The asset received
is measured using the following
order of priority :
1. Fair value of the asset Given up;
2. Fair value of the asset Received; or
3. Carrying amount of the asset Given up
b. Lacks Commercial Substance -
The asset received is measured at
the Carrying amount of the asset
Given up.
No gain or loss arises if the asset received
is measured at the carrying amount of the
asset given up.
Subsequent measurement.
After initial recognition, an entity chooses
either the cost model or the fair value
model as its accounting policy and
applies that policy to all of its investment
property.
Only one model shall be used. Using both
models selectively for items of investment
property is prohibited, except.
in the following cases:
1. When the fair value model is used but
the fair value of one investment property
cannot be reliably determined on initial
recognition, that investment property will
be measured under the cost model ; the
rest are measured under the fair value
model . For purposes of depreciation , the
residual value of the. said property is
assumed to be zero.
2. Separate choices of accounting policy
may be made for (a) investment property
that backs liabilities that pay return linked
directly to the fair value of , or returns
from, specified assets including that
investment property and (b) all other
investment property.
PAS 40 INVESTMENT PROPERTY
PAS 40 requires an entity to determine
the fair value of its investment property,
regardless of the accounting policy used.
Under the fair value model, fair value is
used for measurement purposes while
under the cost model, fair value is used
for disclosure purposes. PAS 40
encourages, but does not require, the use
of an independent valuer in determining
the fair value of an investment property.
An entity may subsequently change its
accounting policy from the cost model
to the fair value model, subject to the
provisions of PAS 8. However, PAS 40
states that it is highly unlikely that a
change from the fair value model to the
cost model will result in a more relevant
presentation.
Accordingly, if the fair value model is
chosen, it shall be applied until the
investment property is derecognized or
reclassified to another asset classification,
even if fair value becomes less readily
determinable.
Cost model.
An entity that chooses the cost model
shall measure the investment property
using the cost model under PAS 16
(PPE).
The entity uses PFRS 5 Non-current
Assets Held for Sale and Discontinued
Operations if it classifies an investment
property as " held for sale " or PFRS 16
Leases if the investment property is a
right-of-use asset resulting from a lease.
Fair value model
Under the fair value model, an investment
property is subsequently measured at its
fair value at the end of each reporting
period.
 Fair value is " the price that would
be received to sell an asset or paid
PAS 40 INVESTMENT PROPERTY
to transfer a liability in an orderly
transaction between market
participants at the measurement
date . " ( PAS 40.5 ).
Gains or losses arising from changes in
fair value are recognized in profit or loss.
Assets measured under the fair value
model are not depreciated.
If the investment property is a right-of-use
asset, fair value is measured for the right-
of-use asset and not the underlying
property.
An entity uses the principles in PFRS 13
Fair Value Measurement when
determining the fair value of an
investment property. To avoid double-
counting, assets and liabilities that are
integral parts of the investment property
are not recognized separately. For
example, elevator and air - conditioning
are an integral part of a building and are
necessarily included in the building's fair
value. Therefore, these items are included
in the measurement of the investment
property (i.e. , the building as a whole)
rather than as separate items of PPE.
Transfers.
Transfers to or from investment property
are made only when there is a change in
use, as evidenced by the following:.
a. Commencement of owner-
occupation, for a transfer from
investment property to PPE;.
b. End of owner-occupation, for a
transfer from PPE to investment
property;
c. Commencement of an operating
lease to another party, or a transfer
from inventories to investment
property
d. Commencement of development
with a view to sale, for a transfer
PAS 40 INVESTMENT PROPERTY
from investment property to
inventories .
In the absence of a change in use, no
transfer is made to or from investment
property. For example, in ( d ) above , a
building that is classified as investment
property which the entity decides to
dispose of without development (e.g. , no
renovation) remains as investment
property until it is derecognized, and not
transferred to inventories, because there
is no change in use.
Similarly, an investment property that is
redeveloped for continued use as
investment property remains as
investment property.
If the entity uses the cost model,
transfers between investment property,
PPE and inventories are accounted for at
the carrying amount of the asset
transferred. No gain or loss arises
because the asset's measurement
remains the same before and after the
transfer.
If the entity uses the fair value model ,
transfers between investment property ,
PPE and inventories are accounted for at
the asset's fair value at the date of change
in use , and :.
A. For a transfer from investment
property to PPE or inventories,
the entity applies PAS 40 until the
date of transfer. Accordingly, the
entity recognizes the change in fair
value on that date as unrealized
gain or loss in profit or loss, just as
it would if the investment property
is remeasured to fair value at the
end of the period. The asset's fair
value at the date of transfer
becomes its deemed cost for
subsequent accounting using PAS
16 , PFRS 16 or PAS 2.
PAS 40 INVESTMENT PROPERTY
B. For a transfer from PPE to
investment property, the entity
applies PAS 16 until the date of
transfer. Accordingly, the entity
recognizes any depreciation on the
asset until that date. Any difference
between the fair value and carrying
amount is recognized in other
comprehensive income as an
adjustment to the asset's
revaluation surplus, except if the
difference represents an
impairment loss or a reversal
thereof.
C. For a transfer from inventories to
investment property , the
difference between the fair value
on the date of transfer and the
previous carrying amount is
recognized in profit or loss.
Derecognition.
An investment property is derecognized
when it is disposed of or when no future
economic benefits are expected from it .
On derecognition, the difference between
the carrying amount and the net disposal
proceeds, if any, is recognized as gain or
loss in profit or loss ( unless PFRS 16
Leases requires otherwise on a sale and
leaseback ) .
Self-constructed investment property.
A self-constructed investment property is
accounted for in much the same way as a
purchased investment property. The initial
cost of a self-constructed investment
property includes all directly attributable
costs of constructing and preparing the
property for its intended use, such as
materials, labor and construction
overhead The cost excludes abnormal
amounts of wasted material, labor or
property.
PAS 40 INVESTMENT PROPERTY
A self-constructed investment property is
subsequently measured using either the
cost model or the fair value model.
The fair value model may be applied even
during the construction period. If,
however, fair value cannot be determined
until construction is finished, the
investment property is temporarily
measured under the cost model. Upon
completion, the difference between the
investment property's cost and fair value
is recognized in profit or loss.
Subsequent expenditures.
Subsequent expenditures on recognized
investment property are generally
expensed, unless they clearly meet the
recognition criteria For example costs of
day-to-day servicing of an investment
property are expensed in the period in
which they are incurred ( i.e., as repairs
and maintenance e.
PAS 40 states an instance where a
subsequent expenditure is capitalized,
which is the replacement of parts of an
investment property. Replacements are
accounted for as follows :.
a. Under the cost model, the cost of
the replacement part ( new part ) is
capitalized to the investment
property, if it meets the recognition
criteria. The carrying amount of the
replaced part ( old part ) is
derecognized and charged as loss,
regardless of whether it had been
depreciated separately. If the
carrying amount of the replaced
part cannot be determined, the
cost of the replacement part is
used as an indication of what the
cost of the replaced part was at the
time it was acquired or
constructed.
b. Under the fair value model, the
cost of the replacement part ( new
PAS 40 INVESTMENT PROPERTY
part ) is capitalized to the
investment property. The
investment property's fair value is
then reassessed and any
difference between the fair value
and the carrying amount is
recognized in profit or loss.
Impairment.
An investment property that is
subsequently measured under the cost
model is tested for impairment using PAS
36 .
There is no separate accounting for
impairment losses for investment property
measured under the fair value because
any increase or decrease in fair value is
simply recognized as gain or loss in profit
or loss.
Any compensation from a third party for
an investment property that is impaired,
lost or given up is recognized in profit or
loss when the compensation becomes
receivable. The impairment or loss, the
compensation from the third party, and
any subsequent acquisition of a
replacement asset are separate economic
events and are accounted for separately.
Disclosure.
General disclosures
a. Whether the entity uses the fair
value model or the cost model.
b. When classification is difficult, the
criteria used to distinguish
investment property from PPE and
inventory .
c. The extent to which the fair value
of investment property is based on
a valuation by an independent
valuer . If an independent valuation
is not obtained, that fact is
disclosed.
d. The amounts recognized in profit
or loss for rental income and
related expenses .
PAS 40 INVESTMENT PROPERTY
e. The existence and amounts of
restrictions on investment
property .
f. Contractual obligations to
purchase, construct or develop
investment property or for repairs ,
maintenance or enhancements.
Additional disclosures under the Fair
value model.
a. Reconciliation showing increases
and decreases in investment
property.
b. When a valuation obtained for
investment property is adjusted to
avoid double - counting of assets
or liabilities that are recognized as
separate assets and liabilities , the
entity discloses a reconciliation
between the valuation obtained
and the adjusted valuation .
c. Disclosure of any investment
property whose fair value on initial
recognition cannot be reliably
measured and hence measured
under the cost model using the
exception allowed under PAS 40 .
Additional disclosures under the Cost
model.
a. The depreciation methods used,
the useful lives, and the
depreciation rates used ;.
b. Reconciliation showing increases
and decreases in investment
property and related accumulated
depreciation and accumulated
impairment loss.