Investment

Property

Mary Cris L. Luzada, CPA, MSA

 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
What is Investment 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.
EXAMPLES of Investment property

land held for land held for building vacant property

long-term a currently leased out building held that is being
capital undetermine under an to be leased constructed
appreciation d future use operating out under an or developed
lease operating for future
lease use as
investment
property
Items NOT considered Investment property
Owner-occupied property or property held for use in the production or supply of goods or services or
for administrative purposes

Property held for future use as owner-occupied property

Property held for future development and subsequent use as owner-occupied property

Property occupied by employees

Owner-occupied property awaiting disposal

property held for sale in the ordinary course of business or in the process of construction of
development for such sale

Property being constructed or developed on behalf of third parties

 OTHER classification issues

Investment Partly Investment

Property Leased
Property Held by and Partly-Owner
to an Affiliate
Lessee Occupied
 Investment property held by lessee

Lessee to recognize a Right of Use

Asset and a Lease Liability (IFRS 16)
Right of Use Asset initially recognized at cost
which includes the following:

1 2 3 4
The present Lease payment Initial direct cost Estimated cost of
value of the made to the lessor incurred by the dismantling and
at or before restoring the
lease payment commencement lessee underlying asset for
date less any lease which the lessee
incentive has a present
obligation
Subsequent Measurement

If a lessee applies the fair value model in

measuring the Investment Property, the lessee
shall also apply the fair value model to the right
of use asset that meets the definition of
investment property.
 Partly
investment

partly owner-
occupied
HOW TO ACCOUNT?

• Account the portions separately as investment

Could be Sold property and owner-occupied.
or Leased Out
Separately

• Classified as Investment Property if only insignificant

portion is held for manufacturing or administrative
purposes
• If ancillary services provided are insignificant
Could NOT be component of the arrangement, Investment Property
SOLD
Separately • If services provided are more significant component
of the arrangement, Owner-Occupied
 PROPERTY LEASED TO AN AFFILIATE

Individual • Leased property is an Investment Property

Entity
(Owner)
Perspective

• Leased property is treated as Owner-Occupied

Group
Perspective
 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
WHEN TO RECOGNIZE INVESTMENT PROPERTY?

Probable that
The cost of the
the future
investment
economic
property can be
benefits will
measured
flow to the
reliably
entity
 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
 measurement

Initial Subsequent
Measurement Measurement
 Initial measurement

COST Transaction Costs are included

Cost of Purchased Investment Property includes

Purchase Price + Directly Attributable Costs
Costs excluded

Start up costs Operating losses incurred before the

investment property achieves the planned
level of occupancy
Abnormal wasted materials,
labor and other resources
 SUBSEQUENT measurement

Choose either Fair Value model or Cost

Model and Apply to ALL of the investment
property
 Fair value model

Investment property is carried at FAIR VALUE.

NO depreciation will be recognized.
 Inability to determine fair value

In exceptional cases, when an entity first acquires investment property, or when an

existing property becomes investment property because there has been a change
of use, there maybe a clear evidence that the fair value CANNOT be determined
reliably on a continuing basis.

Hence, under this exceptional case, the investment property shall be measured
under the COST METHOD until the disposal of the investment property.

Moreover, under this exceptional cases ONLY, the Residual Value of the
investment property is assumed to be zero.
 COST model

Asset is measured at cost less accumulated

depreciation less any accumulated impairment loss.
 ILLUSTRATIVE PROBLEM

An entity ventured into construction of a mega shopping mall in South Asia which is rated as the
largest shopping mall of Asia. The board of directors decided that instead of selling the shopping
mall to a local investor, the entity would hold this property for purposes of earning rentals by letting
out space in the shopping mall to tenants. The construction of the shopping mall was completed,
and the property was placed in service on January 1, 2021.

The cost of construction was P100,000,000. The useful life is P10,000,000. An independent
valuation expert shall
PRACTICE PROBLEM
PRACTICE PROBLEM
 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
Transfers of investment property
Shall be made when there is a Change of Use evidenced by:

Commencement of owner-occupation

Commencement of development with a

view to sale

End of owner-occupation

Inception of an operating lease to another

entity
 Measurement of Transfers

If owner- When an
A transfer from occupied investment
investment property is property
When the
property transferred to If INVENTORY is under
entity uses Cost
carried at fair investment transferred to construction is
Model transfer
value to owner property that is investment completed
between
occupied to be carried at property that is and to be
investment
property or fair value, the to be carried at
property, carried at fair
inventory shall difference fair value, the
owner- value, the
be accounted between the remeasuremen
occupied and difference
for at FAIR FAIR VALUE and t to fair value
inventory shall between fair
VALUE which the CARRYING shall be
be made at value and
becomes the AMOUNT shall included in
carrying carrying
deemed cost be accounted profit or loss.
amount. amount shall
for subsequent for as
accounting. REVALUATION be included in
OF PPE. profit or loss.
 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
 derecognition
An investment property shall be derecognized when:

On disposal

When the investment property is

permanently withdrawn from use

When no future economic benefits are

expected from the investment property
 Topics to cover

DEFINITION RECOGNITION MEASUREMENT TRANSFERS derecognition

disclosures
 disclosures
The general disclosures are:

Whether the entity uses the cost model

or fair value model

The amount of rental income with the

related expense

Restrictions on the investment property

Contractual obligations to purchase or

construct investment property
 disclosures
When fair value model is used, the disclosures are:

Detailed reconciliation between CA of investment

property at the beg and end of the period

The method of determining the fair value and whether

the valuation is carried out by an independent valuer

Net gains and losses from fair value adjustments

Whether significant fixtures within the investment

property have been separately recognized
 disclosures
When cost model is used, the disclosures are:

The depreciation method or rate and

useful life.

Detailed reconciliation of the gross cost of

investment property and the related
accumulated depreciation

Fair value of the investment property

where possible. If not possible, such fact
shall be explained.
Thank you!