IAS 40: Investment Property
No Details
1 Scope
(be mindful of the scope exclusion, as you
will need to apply a different accounting
standard for those transactions/ account
balance other than the requirements of IAS
40)
2 Definition
(use bullets as a checklist, if one criteria is • Held by the owner or lessee as a right of use asset
not met then (i) the definition is not met and • To earn rentals or capital appreciation or both
(ii) you cant apply IAS 40)
3 Recognition
(When will you record the investment
property in your accounting records)
4 Measurement
(which amount will you record in your
accounting records)
Principles
1.1) Applies to recognition, measurement and disclosure of investment property as defined
1.2) Does NOT apply to a) Biological assets related to agriculture (refer to IAS 41 & IAS 16)
b)Mineral rights and reserves (e.g. oils, natural gas, etc.)
2.1) Investment property is:
• Land or building or part of a building or both
• Rather than :
- To sell in the ordinary course of business (i.e. inventory) OR
- To use in production or supply or services or for administrative purposes (i.e. owner occupied property).
2.2) Other important factors to consider: a) The difference between investment investment property generate cash flows independent from other assets
property and owner occupied
b) Examples of what is not investment i) property leased to another entity under a finance lease
property ii) owner occupied property:
iii) property you intent to sell in the ordinary course of business
c) In instances where the property is used for you will need to classify the property as investment property ONLY if the SIGNIFICANT use is in relation to
multiple services earning rentals or capital appreciation
3.1) Recognize as an ASSET when: a) The COST of investment property can be MEASURED RELIABLY AND
b) It is PROBABLE that FUTURE ECONOMIC BENEFITS related to the investment property WILL FLOW TO the entity
(i.e. recognize on the date you meet
both requirements)
3.2) Exception to the rule Investment property held by a lessee as a right of use shall be recognized in terms of IFRS 16 (state IFRS 16 requirement)
4.1) Initial measurement a) All assets i) Cost + Transaction costs
( all cost incurred to bring the asset to its location and management intended use)
b) Exception to the rule Investment property held by a lessee as right of use asset – measure at cost according to IFRS 16
c) Other factors to consider i) Cost does NOT include
- Startup cost ( those not related to bringing the asset to its intended use)
- Operating losses incurred before the investment property achieve planned level of occupancy
- Wastage cost incurred when developing or constructing the property.
ii) Where the payment is deferred you will then be required to consider compounding rules (i.e. determine the
PV). The difference between what you are expected to pay vs the actual cost of the assets should be
classified as interest expense
iii) If you exchange a non-monetary asset for an asset (or combination of both) you shall measure using Fair
value principles unless you can prove that:
- The exchange lacks commercial substance OR
- You can’t reliably measure the Fair Value of neither asset received or given up
- If one of the two (-) above is met then measure CARRYING AMOUNT of the ASSET GIVEN UP
4.2) Subsequent measurement a) Choose to measure at COST or FAIR VALUE model
b)The choice shall be applied to ALL investment property
c) Fair value model • Determine the Fair value in terms of IFRS 13
• Exception to the rule above: Investment property held by a lessee as a right of use asset – measure the
right of use of asset at FAIR Value and not the property (i.e. Apply IFRS 16).
• At the end of each financial year you perform a re-measurement (aka subsequent measurement) where
you need to determine the difference between the opening and closing fair value. The difference identified
will be regarded as a GAIN or LOSS which should be recognized in Profit or Loss (i.e. current year - prior
year closing balance = gain/loss)
d)Cost Model • If asset meet the criteria of Non-current asset held for sale and Discontinued operations – apply IFRS 5
subsequent measurement principles
• Right of use assets held by lessee and not held for sale in terms of IFRS 5 – apply IFRS 16 subsequent
measurement principles
• All other assets (i.e. those that don’t fall in the two bullets above) – apply IAS 16 subsequent measurement
principles
5 Transfers 5.1) Transfers into or out of investment property occurs when there’s a CHANGE IN USE
5.2) Change in use occurs when you meet or cease to meet the definition of investment property AND there’s evidence of change in use (Note: management INTENTION ALONE is not sufficient
(this is basically a change in classification) evidence that there’s a change in use)
5.3) Measurement:
No From (BEFORE) To (AFTER) The "NEW" Initial measurement
a Investment property measured at PPE (IAS16), Right of use asset (IFRS 16), The carrying amount before and after the change in use will be the same amount
cost Inventory (IAS 2) - measured at cost
b PPE (IAS16), Right of use asset Investment property measured at cost The carrying amount before and after the change in use will be the same amount
(IFRS 16), Inventory (IAS 2) -
measured at cost
c Investment property measured at PPE (IAS16), Right of use asset (IFRS 16), the carrying amount = Fair Value at date of change
Fair value Inventory (IAS 2)
d PPE (IAS16), Right of use asset Investment property measured at Fair value i) Measure the carrying amount in terms of IAS 16 or IFRS 16
(IFRS 16) ii) Determine the Fair value of Investment property
iii) If there's a difference between i) and ii) then treat it in accordance with the revaluation model in IAS 16

e Inventory (IAS 2) Investment property measured at Fair value i) Measure the carrying amount in terms of IAS 2
ii) Determine the Fair value of Investment property
iii) If there's a difference between i) and ii) then treat it as a gain/loss and recognize in profit or loss

f. Note: the above gives examples of some accounting standards but please note that any accounting standard can be applied (e.g. move from IFRS 5 to IAS 40) . The trick is for you to ask yourself
which standard was applicable BEFORE the change in use and which accounting standard applies AFTER the change in use. Then apply the measurement principles of each standard to:
i) Determine the new "initial measure" AFTER the change in use
ii) Determine if there's a gain or loss
6 Disposal 6.1) Derecognize a) On disposal OR
(i.e. remove from the statement of financial position) b) when the property is permanently withdrawn from use
c) AND no future economic benefits are expected from its disposal
6.2) Gains and losses from disposal a) Determined as: Net disposal proceeds Less Carrying amount
b) recognize the gain or loss in profit or loss unless IFRS 16 requires otherwise
6.3) Net disposal proceeds It’s the transaction price as determine in terms of IFRS 15 (paragraph 47 -72)
6.4) If liabilities arise due to disposal Apply IAS 37 on treatment of the liability
6.5) Compensation from 3rd parties Recognize in profit or loss when the compensation becomes RECEIVABLE
7 Disclosure 7.1) General disclosure a) Statement of financial Position

(how do you present on the face of the

Statement of Financial Position and
disclose in the Notes to the financial
statement)
b) Notes to the financial statement The entity shall disclose the following:
i) the measurement basis ( cost or fair value)
ii) if classification is difficult, the criteria used to differentiate between owner occupied vs investment property
iii) The extent to which fair value was determined by an independent valuator with necessary qualification
and experience. In cases where no valuator was used the entity must disclose fact.
iv) amounts recognized in profit/loss relating to the investment property: (rental income, direct operating
expenses and cumulative fair value changes)
v) Restrictions (including the amount) relating to the investment property
vi) Obligations (purchase, construct, develop, maintain, improve the investment property)
vii) depending on measurement model include additional disclosure in terms of 7.2 or 7.3

7.2) If you applied Fair Value model Draft a reconciliation between the opening and closing carrying amount showing:
7.3) If you applied Cost Model Disclose the following information un addition to section 7.1 above