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IAS 40 Investment Property
IAS 40 Investment Property
Overview
IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for
capital appreciation (or both). Investment properties are initially measured at cost and, with some exceptions. may be
subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value
model being recognised in profit or loss.
IAS 40 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.
History of IAS 40
Date Development Comments
October 1984 Exposure Draft E26
Accounting for Investments
published
March 1986 IAS 25 Accounting for Invest‐ Operative for financial
ments issued statements covering
periods beginning on or
after 1 January 1987
July 1999 Exposure Draft E64 Invest‐ Comment deadline 31
ment Property published October 1999
April 2000 IAS 40 Investment Property Operative for annual
(2000) issued financial statements
(Supersedes IAS 25 with covering periods begin‐
respect to investment ning on or after 1
property) January 2001
May 2002 Exposure Draft Improve‐ Comment deadline 16
(https://www.iasplus.com/en/news/2002/May/news560) ments to International September 2002
Accounting Standards (2000)
published
18 December 2003 IAS 40 Investment Property Effective for annual
(https://www.iasplus.com/en/news/2003/December/news753) (2003) issued periods beginning on or
after 1 January 2005
22 May 2008 Amended by Annual Im‐ Effective for annual
(https://www.iasplus.com/en/news/2008/May/news4276) provements to IFRSs 2007 periods beginning on or
(include property under con‐ after 1 January 2009
struction or development for
future use within scope)
12 December 2013 Amended by Annual Im‐ Effective for annual
(https://www.iasplus.com/en/news/2013/12/aip-2011-2013) provements to IFRSs 2011– periods beginning on or
2013 Cycle (interrelationship after 1 July 2014
between IFRS 3 and IAS 40)
8 December 2016 Amended by Transfers of In‐ Effective for annual
(https://www.iasplus.com/en/news/2016/12/ias-40) vestment Property (Amend‐ periods beginning on or
ments to IAS 40) after 1 July 2018
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3/17/23, 7:30 AM IAS 40 — Investment Property
Related Interpretations
None
Summary of IAS 40
Definition of investment property
Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee
under a finance lease) to earn rentals or for capital appreciation or both. [IAS 40.5]
The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and 40.9]
property held for use in the production or supply of goods or services or for administrative purposes PPE
property held for sale in the ordinary course of business or in the process of construction of development for
such sale (IAS 2 (https://www.iasplus.com/en/standards/ias/ias2) Inventories) Inventories
property being constructed or developed on behalf of third parties (IAS 11 (https://www.iasplus.com/en/stan‐
dards/ias/ias11) Construction Contracts) construction contracts
owner-occupied property (IAS 16 (https://www.iasplus.com/en/standards/ias/ias16) Property, Plant and
Equipment), including property held for future use as owner-occupied property, property held for future devel‐
opment and subsequent use as owner-occupied property, property occupied by employees and owner-occu‐
pied property awaiting disposal ppt
property leased to another entity under a finance lease de recognized in the books
Property held under an operating lease. A property interest that is held by a lessee under an operating lease may
be classified and accounted for as investment property provided that: [IAS 40.6]
Partial own use. If the owner uses part of the property for its own use, and part to earn rentals or for capital appreci‐
ation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that
is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment
property only if the owner-occupied portion is insignificant. [IAS 40.10]
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3/17/23, 7:30 AM IAS 40 — Investment Property
Ancillary services. If the entity provides ancillary services to the occupants of a property held by the entity, the ap‐
propriateness of classification as investment property is determined by the significance of the services provided. If
those services are a relatively insignificant component of the arrangement as a whole (for instance, the building owner
supplies security and maintenance services to the lessees), then the entity may treat the property as investment prop‐
erty. Where the services provided are more significant (such as in the case of an owner-managed hotel), the property
should be classified as owner-occupied. [IAS 40.13] PPE
Intracompany rentals. Property rented to a parent, subsidiary, or fellow subsidiary is not investment property in con‐
solidated financial statements that include both the lessor and the lessee, because the property is owner-occupied
from the perspective of the group. However, such property could qualify as investment property in the separate finan‐
cial statements of the lessor, if the definition of investment property is otherwise met. [IAS 40.15]
Recognition
Investment property should be recognised as an asset when it is probable that the future economic benefits that are
associated with the property will flow to the entity, and the cost of the property can be reliably measured. [IAS 40.16]
Initial measurement
Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up
costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level
of occupancy. [IAS 40.20 and 40.23]
One method must be adopted for all of an entity's investment property. Change is permitted only if this results in a
more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a fair value model to a cost
model.
Investment property is remeasured 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. [IAS 40.5] Gains or
losses arising from changes in the fair value of investment property must be included in net profit or loss for the period
in which it arises. [IAS 40.35]
Fair value should reflect the actual market state and circumstances as of the balance sheet date. [IAS 40.38] The best
evidence of fair value is normally given by current prices on an active market for similar property in the same location
and condition and subject to similar lease and other contracts. [IAS 40.45] In the absence of such information, the
entity may consider current prices for properties of a different nature or subject to different conditions, recent prices
on less active markets with adjustments to reflect changes in economic conditions, and discounted cash flow projec‐
tions based on reliable estimates of future cash flows. [IAS 40.46]
There is a rebuttable presumption that the entity will be able to determine the fair value of an investment property reli‐
ably on a continuing basis. However: [IAS 40.53]
If an entity determines that the fair value of an investment property under construction is not reliably deter‐
minable but expects the fair value of the property to be reliably determinable when construction is complete,
it measures that investment property under construction at cost until either its fair value becomes reliably de‐
terminable or construction is completed.
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If an entity determines that the fair value of an investment property (other than an investment property under
construction) is not reliably determinable on a continuing basis, the entity shall measure that investment prop‐
erty using the cost model in IAS 16. The residual value of the investment property shall be assumed to be
zero. The entity shall apply IAS 16 until disposal of the investment property.
Where a property has previously been measured at fair value, it should continue to be measured at fair value until dis‐
posal, even if comparable market transactions become less frequent or market prices become less readily available.
[IAS 40.55]
Cost model
After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16
(https://www.iasplus.com/en/standards/ias/ias16) Property, Plant and Equipment – cost less accumulated deprecia‐
tion and less accumulated impairment losses. [IAS 40.56]
Transfers to, or from, investment property should only be made when there is a change in use, evidenced by one or
more of the following: [IAS 40.57 (note that this list was changed from an exhaustive list to an non-exhaustive list of
examples by Transfers of Investment Property in December 2016 effective 1 January 2018) ]
owner occupied
property PPE
-
When an entity decides to sell an investment property without development, the property is not reclassified as inven‐
tory but is dealt with as investment property until it is derecognised. [IAS 40.58]
The following rules apply for accounting for transfers between categories:
for a transfer from investment property carried at fair value to owner-occupied property or inventories, the fair
value at the change of use is the 'cost' of the property under its new classification [IAS 40.60]
for a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be
applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at
that date and the fair value is dealt with as a revaluation under IAS 16 [IAS 40.61]
for a transfer from inventories to investment property at fair value, any difference between the fair value at the
date of transfer and it previous carrying amount should be recognised in profit or loss [IAS 40.63]
when an entity completes construction/development of an investment property that will be carried at fair val‐
ue, any difference between the fair value at the date of transfer and the previous carrying amount should be
recognised in profit or loss. [IAS 40.65]
When an entity uses the cost model for investment property, transfers between categories do not change the carrying
amount of the property transferred, and they do not change the cost of the property for measurement or disclosure
purposes.
Disposal
An investment property should be derecognised on disposal or when the investment property is permanently with‐
drawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal should
be calculated as the difference between the net disposal proceeds and the carrying amount of the asset and should
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be recognised as income or expense in the income statement. [IAS 40.66 and 40.69] Compensation from third parties
is recognised when it becomes receivable. [IAS 40.72]
Disclosure
a reconciliation between the carrying amounts of investment property at the beginning and end of the period,
showing additions, disposals, fair value adjustments, net foreign exchange differences, transfers to and from
inventories and owner-occupied property, and other changes [IAS 40.76]
significant adjustments to an outside valuation (if any) [IAS 40.77]
if an entity that otherwise uses the fair value model measures an item of investment property using the cost
model, certain additional disclosures are required [IAS 40.78]
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