IAS 40 Investment Property

07
DEFINITIONS |1
Investment property is land and/or building held to earn rentals, or for capital
Investment
appreciation or both, rather than for use in the entity or for sale in the ordinary
property
course of business.
 Land held for long term appreciation rather than for sale in ordinary
Examples
course of business.
of
 A building leased out under an operating lease.
investment
 A land or building for which no purpose has yet been defined and is
property
not in use of the entity itself.
 Property intended for sale in the ordinary course of business (IAS 2
Examples
applies)
of non-
 Property being constructed on behalf of third parties (IAS 11 applies)
investment
 Owner occupied property (IAS 16 applies)
property

MEASUREMENT
GENERAL
Initial An investment property should be initially measured at cost.
measurement
There are two choices:
 Fair value model
Subsequent  Cost model
measurement
Whatever policy is chosen, should be applied to all investment
properties.
 The investment property is presented at fair value at the end of each
reporting period.
Fair value
 No depreciation is charged.
model
 Any gain or loss due to change in fair value is recognised in profit or
loss.
The investment property is presented at cost less accumulated depreciation
Cost model
(same as IAS 16)
QUESTION 01
James, a manufacturing company, purchases a property of Rs. 1,000,000 on 1 January
2011 for its investment potential. The land element of the cost is believed to be Rs. 400,000
and the building element is expected to have a useful life of 50 years. At 31 December 2011,
the local property market suggests that the fair value of the property has risen to Rs.
1,100,000. Show how the property would be presented in the financial statements as at 31
December 2011 if James adopts:
(a) The cost model
(b) The fair value model
 ICMAP M4 Financial Accounting

QUESTION 02 Model Paper Q5 (b)

(i) Alto Company holds a plot for many years and its use has yet not been ascertained
(ii) Delta Company.s premises are vacant and management has decided to lease it out
under operating lease.
(iii) Lahore Real Estate holds property intended for sale in the ordinary course of
business.
2| (iv) Future Tech Company owns factory premise which is entirely used for production.
(v) Property being constructed or developed on behalf of third parties.

Required:
What International Accounting Standards (IASs) will be applicable to the above situations?
(05)

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