MFRS 140

INVESTMENTPROPERTY
 LEARNING OUTCOME
AT THE END OF THIS TOPIC, YOU SHOULD BE ABLE TO:
 Define and give examples of investment properties
 Explain the initial and subsequent measurement of investment
properties
 Discuss the accounting treatments – recognition and
measurement – for transfers to or from investment properties
 Show the disclosure requirements for reclassification of owner
occupied properties to investment properties

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 Investment Property
 Property – (LAND or BUILDING - or part of
building - or both) held to earn rentals or
for capital appreciation or both, not for:
use in the production or supply of goods or
services or for administrative purposes, or
sale in the ordinary course of business.

 CARS FOR RENTAL AN IP??? NO

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 Investment Property -
Examples
 Held for long-term capital appreciation
rather than for short-term sale in the
ordinary course of business
 Held for a currently undetermined
future use.
 Owned by the entity and leased out
under one or more operating leases
 Being constructed or developed for
future use as investment property
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 Non Investment Property
- Examples
 Owner-occupied property, including
 property held to be used in future as owner
occupied
 property occupied by employees of the
owner
 property awaiting disposal
 Property currently under construction or
development on behalf of third parties
 Property leased to another entity under a
finance lease arrangement
 Property held for sale in the ordinary course
of business – inventory

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 Properties With Dual
Uses
 If property can be sold or leased out separately
 Part rented out is classified as investment
property (MFRS140)
 Part occupied is classified as PPE (MFRS116)

 If property cannot be sold or leased out

separately
 The whole property is classified as investment
property if the part that is occupied is
insignificant

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 Properties With
Ancillary Services
 If the services component is insignificant to
the arrangement of the business as a whole
 Asset is classified as investment property
(MFRS140)

 If the services component is significant to the

arrangement of the business as a whole
 Asset is classified as PPE (MFRS116)
 E.g. Hotel Owner-Manager

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 Exchange Transaction
 When an investment property is acquired in exchange for non-monetary
assets, in whole or in part, the commercial substance should be considered.
 The cost of such an investment property is measured at fair value
unless:
a. the exchange transaction lacks commercial substance; or
b. the fair value of neither the asset received nor the asset given up is
reliably measurable.
 If (despite lack of market transactions) the entity is able to determine
reliably the fair value of either the asset received or the asset given up, then
the fair value of the asset given up is taken as cost of the
asset received, unless the fair value of the asset received is more clearly
evident.
 If the fair value of the asset acquired is not measured at fair value then its
cost is measured at the carrying amount of the asset given
up.
 Properties Within a
Group
 Property owned by a group and occupied
by the parent or subsidiary
 Classified as PPE in the consolidated
financial statements
 Classified as investment property in the
financial statements of the company that
owns property

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 Recognition Criteria
 It is probable that the future economic
benefits that are associated with the
investment property will flow to entity, and

 The cost can be measured reliably

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 Initial Measurement
 Initially measured at its cost

 Costs include
 Initial costs incurred when first acquired and
 Subsequent costs incurred to add to, replace
part of, or service to a property

 Day to day servicing costs – repairs and

maintenance – are not recognized in its
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1 carrying amount
 Initial Measurement
 Purchased investment property
 Costs comprises purchase price, and
any directly attributable expenditure.
Directly attributable expenditure
includes professional fees for legal
services, property transfer taxes and
other transaction costs.

 Property held under finance lease

 The lower of fair value and present
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2 value of minimum payments
 Example
On 1 January 20X1, Citra Bhd acquired an investment property
in the form of building for RM22 millions. The purchase
agreement provided for settlement in full on 31 December
20X1 (before trade discount factor of 10%). RM1 million
transfer duty and RM40,000 legal fees were incurred and paid
during January 20X1 in respect of the acquisition of this
property. Rates for the year ended 31 December 20X1 of
RM200,000 were paid on 30 November 20X1.
Required
Measure the cost to be recognised by Citra Bhd upon initial
recognition of the building as investment property
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 Solution
Costs Reason and Calculation RM

Purchase price – (RM22,000,000- 19,800000

cash cost RM2,200,000)
Transfer duty Directly attributable 2,000,000
costs
Legal fees Directly attributable 40,000
costs
Rates Operating cost: expensed -
off-excluded

Total 21,840,000

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 Subsequent
Measurement
 Entity is allowed to choose one of the
following:
 Fair value model
 Cost model
 A model, once chosen, must be applied to all its
investment properties
 A voluntary change is made only if the change
results in the financial statements providing
reliable and more relevant information about the
effects of transaction, other events, or conditions in
the entity’s financial position, performance or cash
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5 flows.
 Cost Model
 Property is measured in accordance
with MFRS 116 - at cost less
accumulated depreciation and
accumulated impairment losses

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 Fair Value Model
 Property is measured at fair value or market value.
 Fair value – amount for which an asset could
be exchanged between knowledgeable,
willing parties in an arms length transaction
and should reflect market conditions at the
balance sheet date

 Any gain or loss arising from a change in fair

value is recognized in SOPL for the period in
which it arises.
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 Fair Value Model
A willing buyer is motivated, but not
compelled to buy at any price

 A willing seller is not over-eager, not forced

to sell at any price, not one who is prepared
to hold out for a price not considered
reasonable in current market conditions

 Arms length transaction is a transaction

between unrelated parties, acting
independently, with no special relationship
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 Fair Value Model
 An entity must ensure that assets and liabilities
are not double-counted:
 Equipments – lifts or air conditioning – included in the
fair value is not recognized separately as property,
plant and equipment

 Furniture included in the fair value of an office building

is not recognized separately as property, plant and
equipment

 Prepaid or accrued operating lease income –

accounted as separate liability or asset – is excluded
from the fair value

 Any recognized lease liability is added back to

determine the carrying amount
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 Inability to Determine Fair
Value Reliably
 If the fair value of an investment property under
construction is not reliably determinable, the
cost model should be used until either its fair
value is reliably determinable or construction is
completed (whichever is earlier).
 If the fair value is not reliably determinable even after
construction is completed, the property shall be
measured based on the cost model in FRS116

 If the fair value of an investment property is not

reliably determinable on a continuing basis, the
cost model in MFRS116 should be used.
 The residual value is assumed zero
 The cost model is applied until its disposal

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 Example 1a
Nyumee Bhd is involved in the manufacturing of biscuits and
confectioneries. On 1 January 2012, the company acquired a
building in Pulau Langkawi at a price of RM7,000,000. Legal and
transfer fees of RM500,000 and RM20,000 were incurred
respectively. The estimated useful life of the building is 50 years. The
building was rented out immediately to Trex Bhd for RM388,000
per month, who used the building as a hotel.
The fair values of the building on 31 December 2012 and 31
December 2013 were RM7,990,000 and RM7,828,000 respectively.
Nyumee Bhd adopts the revaluation model and the fair value model
for the subsequent measurement of its property, plant and
equipment and investment property respectively
Discuss the accounting treatment of the building for
years ended 31 December 2012 and 2013.
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 Solution
The building is classified as an investment property on 1
January 2012 at the initial cost of
RM7,520,000(7m+500k+20k). Since Nyumee Bhd has
adopted the fair value model for its investment properties,
changes in their fair value will be recognized in the
statement of profit and loss. An increase in the fair
value of RM470,000(7,990,000 -7,520,000)on 31 December
2012 shall be credited to the statement of profit or loss, while
a decrease in the fair value of RM162,000(7,828,000-
7,990,000) shall be written off in the statement of profit or
loss. The building shall not be depreciated.

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 Journal Entries
2012 Dr Investment RM
property 7,520,000
Cr Cash/ Payable RM
7,520,000

Dr Investment RM 470,000
property
Cr SOPL – change RM 470,000
in fair value

2013 Dr SOPL – change RM 162,000

in fair value

Cr Investment RM 162,000
property
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 Transfers To or From
Investment Property
 Transfers are made when there is a
CHANGE IN USE
Transfers Proof Of Change In Use

MFRS140 IP to MFRS116 PPE Commencement of owner-

occupation

MFRS116 PPE to MFRS140 IP End of owner occupation

MFRS140 IP to MFRS102 Commencement of development

2 Inventories with a view to sale
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Transfers
Basically, assets like building and land may undergo changes in
usage.
For example, a building used for administrative may later be
rented out.
MFRS 140 MFRS 116

Accounting Treatment:
At the date of transfer/change, the value use will be the fair
value. Subsequently the treatment will be according to
MFRS116.
 Refer to Example 1a
In 2014, the managements of Nyumee Bhd made a decision to
diversify into the hotel industry. They gave Trex Bhd six
months’ notice to vacate the building and eventually on 1 July
2014, the company began its hotel operations using the
building. On this date, the fair value of the building was
determined to be RM7,920,000.
Required:
Advise Nyumee Bhd on the accounting treatment of the
transfer of the investment property to owner-occupied
property on 1 July 2014 in accordance with MFRS 140
Investment Property.
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 Solution
Under MFRS 140 Investment Property, on the date of the transfer
on 1 July 2014 , the owner occupied property will be
measured at the fair value of the investment property of
RM7,920,000 . The difference between the fair value at
transfer date and the previous carrying amount of RM92,000
(7,920,000 – 7,828,000) is recognized in the statement of
profit or loss. From here onwards, the building shall be
depreciated over its remaining useful life of 47.5 years.

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Example 2
Kay El Bhd purchased a property costing RM9,000,000 on
1 January 2011. This property was rented out to OMG
Bhd at an annual rental of RM 250,000. The rental has
been negotiated at arm’s length.
On 1 January 2012, the property was vacated by OMG
Bhd and Kay El decided to use the property as
administration office. The fair value of the property at that
time was RM10,500,000.
Assuming Kay El Bhd adopts the fair value model in its
measurement subsequent to the initial recognition,
show the relevant journal entry.
 Solution
1.1.2011
Dr Inv Property 9m
Cr Cash/Payable 9m

31.12.11
Dr Inv Property 1.5m
Cr SOPL 1.5m
1.1.2012
Dr PPE 10.5m
Cr Inv Property 10.5m
MFRS 116 MFRS 140
Accounting treatment.
At the date of transfer/change, the value use will be the fair
value. The fair value will be compared with the carrying value
(cost – accumulated depreciation) at the date of transfer. Any
surplus is to be accounted in revaluation reserve and
deficit to the SOPL. Subsequently the treatment will be
according to MFRS140.
Example
On 31.12 2012, Boleh Bhd vacated a building in Shah Alam
which has been its administrative centre and move to a new
building in Putra Jaya. The former building has a carrying
value of RM5 million and is now rented out to 4 tenants.
The fair value of the said building is RM7 millions and is
treated as investment property under MFRS 140. On
31.12. 2013, the property has a market value of RM7.5
millions.
Solution
31.12.2012. at the date of transfer
Dr. Building (IP) 7 million
Cr Building (PPE) 5 million
Cr Asset rev reserve 2 million
31.12.2013
Dr. Building (IP) 0.5 million
Cr. SOPL /Gain 0.5 million
 Disposals of Investment
Properties
 Investment property is eliminated from the
SOFP:
 On disposal by sale or by entering into a finance
lease; or
 When it is permanently withdrawn from use

 Difference between the net proceeds and the

carrying amount - gain or loss – is recognized in
profit or loss
 Compensation from 3rd parties for IPs that have
been impaired, lost or given up are recognized
in the income statement when receivable.
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 Disclosure
 An entity shall disclose:
 Whether the fair value model or cost model has
been applied
 Fair value model- reconciliation of carrying amount
at beginning and end of period
 Cost model – depreciation method, useful lives,
gross carrying amount and accumulated
depreciation at beginning and end of period
 Criteria it uses to distinguish investment property
from owner occupied property
 Methods and assumptions used to determine fair
value
 Rental income, operating expenses and changes
in fair value
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