PAS 40: Investment Property

 Property held by an owner or by the lessee (under a finance lease) to earn rentals or for capital appreciation or both.

When to Recognize?

 IF it’s a LAND or BUILDING HELD TO EARN RENTALS and FOR CAPITAL APPRECIATION. Movable property CANNOT
qualify as Investment Property.
 When it is probable that the future economic benefits that associated with the property will flow to the enterprise.
 The cost of the property can be reliably measured.
 It is important to remember that a property being held to earn rentals is not an entity’s ordinary course of business.

Other Qualification of Investment Property

a) Held for long-term capital appreciation.

b) Held for a currently undetermined use.
c) If the property owned is leased out under an OPERATING LEASE.
d) Property is vacant but is held to be leased out under an OPERATING LEASE.
e) Property is under construction or developed for future use as investment property.

Note: Properties being held for production and administrative purposes of business is NOT QUALIFIED AS Investment
Property but an Owner-Occupied Property. If the property is being leased out under the ordinary course of business, it
will be PPE (PAS 16). If the property is for sale under the ordinary course of business, it is Inventory (PAS 2). If selling of
property is NOT the ordinary course of business, then it is considered Non-Current Asset Held for Sale (PFRS 5).

Partly Investment and Partly Owned-Occupied

 If these portions could be sold or leased out separately, an entity shall account the portions separately as
INVESTMENT PROPERTY and OWNER-OCCUPIED PROPERTY.
 If these portions could NOT be sold or leased out separately, the property is Investment Property IF ONLY AN
INSIGNIFICANT portion is held for manufacturing or administrative purposes.

Ancillary Services

 When ancillary/necessary services are provided by the entity to the occupants of the property and these services are
a RELATIVELY INSIGNIFICANT component of the arrangement, the property is treated as Investment Property.
However, if the service provided is a SIGNIFICANT component, the property is treated as Owner-Occupied Property.

Property Leased to an Affiliate

 In the perspective and in the separate Financial Statements of the entity that owns the property being leased to
another subsidiary or its parent is considered as Investment Property. However, from the perspective of the group
as whole and for the purpose of consolidated financial statements, the property is treated as Owner-Occupied
Property.

Initial Measurement?

a) Acquisition Cost, except refundable taxes (e.g., Value-Added Taxed), rebates, discounts.
b) Direct or Transaction Cost
c) Dismantling/Raging Cost (measured @Present Value)
Note: 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.
Subsequent Measurement?

 The entity can choose from the accounting policy, Fair Value Model and Cost Model

If Cost Model is Used

The asset shall be carried at cost less accumulated depreciation and any accumulated impairment loss. Fluctuation in
the FV of the investment property from year to year is NOT RECOGNIZED. The annual depreciation and any
impairment are charge against profit or loss for the year.

If FV Model is Used

FV of an asset is the price that would be received to sell an asset in an orderly transaction between market
participants at the measurement date (Paulit-ulit?). The price in the principal market used to measure fair value
SHALL NOT be adjusted for transaction cost.

NO depreciation is recorded for the Investment Property.

Every change in FV from year to year are recognized in profit/loss.

Exceptions:

PAS 40, par. 53, mandates that the entity shall measure investment property which its FV cannot be determined
reliably on a continuing basis USING THE COST METHOD until the disposal of the investment property.
PAS 40, par. 54, states that if the entity is using FV Model, the other Investment Property must still be measured at
FV notwithstanding the fact that one investment property is carried using the cost model.

Derecognition?

 Disposal
-Gain or loss from the disposal shall be determined between the NET disposal proceeds and the carrying amount of
the asset
 When the investment property is PERMANENTLY withdrawn from use
 When NO FUTURE economic benefits are expected from the investment property

Presentation

Non-Current Asset

Disclosure?

The entity must disclose what accounting policy is used, either FV Model or Cost Model.
If the FV model is used, whether property interests held under operating leases are classified and accounted for as
investment property.
If classification is difficult, the criteria to distinguish investment property from owner-occupied property and from
property held for sale.
The method and significant assumptions applied in determining the fair value of investment property.
The extent to which the fair value of investment property is based on a valuation by a qualified independent valuer; if
there has been no such valuation, that fact must be disclosed.
the amount recognized in profit or loss for:
a) Rental income from investment property.
 b) Direct operating expenses (including repairs and maintenance) arising from investment property that
generated the rental income during the period; and
c) Direct operating expenses (Including repairs and maintenance) arising from investment property that did
not generate rental income during the period.
 Restriction on the realizability of the investment property or the remittance of income and proceeds of disposal.
contractual obligations to purchase, construct, or develop investment property or for repairs, and maintenance or
enhancements.

Transfer of Investment Property and Its Measurements

1) If the Investment Property, being measured before using the Cost Model, is transferred to PPE or Inventory, the
transfer shall be at CARRYING AMOUNT.
2) If the Investment Property, being measured before using the FV Model, is transferred to Inventory, the FV will be
the deemed cost.
3) If the PPE is transferred to Inv. Prop. and is to be measured at FV, the difference of the Carrying Amount and the
FV will be the revaluation.
4) If the Inventory is transferred to Inv. Prop. and is to be measured at FV, the remeasurement will be included at
P/L.
5) If the construction of an Inv. Prop. is completed and is to be measured at FV, the difference of the FV and the
Carrying Amount will be included in P/L.