3/18/2023

Scope
• IAS 40-Investment property does not apply to:
• Biological assets (IAS 41-Agriculture and IAS 16-Property, Plant & Equipment)
• Mineral rights and mineral reserves such as oil, natural gas…
IAS 40-Investment property

1 2

Contents Definitions of terms

• Definitions
• Identification
• Recognition and Measurement
• Presentation and disclosure
• Investment property: Property (land/building/part of a building) held
(by the owner or by the lessee under a finance lease) to earn rental
income or for capital appreciation purpose or both, rather than for:
• Use in the production or supply of goods or services or for administrative
purposes
• Sale in the ordinary course of business

Inventories Owner-occupied
property
(IAS 2) (IAS 16)
3 4

1
 3/18/2023

Identification Identification
• Example of investment property • Example of items that are not investment property
• Land held for long-term capital appreciation • Property employed in the business
• Land held for currently undetermined future use • Owner-occupied property
• A building owned by the reporting entity (or held by the reporting entity • Property being constructed on behalf of third parties
under a financial lease) and leased out under one or more operating leases • Property held for sale in the ordinary course of business or in the process of
• A vacant building held by an entity to be leased out under one or more production/development for such sale
operating leases • Property that is leased to another entity under a finance lease
• Property under construction or being developed for future use as investment
property.

5 6

Identification Identification
Joint use properties Ancillary services
• Properties used for a variety of purpose: a portion is used to earn rental • Entity may provide ancillary services to the occupants of its property:
income, a portion is used in the production or supply of goods or services or maintenance of the building, security
administrative purposes.
Can each portion be sold or leased out
separately?
Insignificant? Ancillary services are insignificant or incidental?
Professional
judgement
Yes No Yes No

Entire property is classified as

Each portion is classified Property, Plants and Equipment;
separately Unless the owner-occupied portion is
insignificant => Entire property is
classified as Investment property
Property is classified as Property is classified as
Investment property Property, Plants and
Equipment
(used for supply of services)
7 8

2
 3/18/2023

Example Answer
• Entity X built a residential property with the intention of selling it. In • Inventory
the past, X has regularly developed property and sold it immediately
after completion. To increase the chances of a sale, X chooses to let
some of the flats as soon as they are ready for occupation. The
tenants move into the property before completion.
=> X should classify this property as…………………………………..

9 10

Recognition & Measurement Recognition & Measurement

Investment Property costs is recognized as an Asset Measurement: Amount?
: When
▪ It becomes probable that the entity will enjoy the future economic benefits Initially
which are attributable to it
▪ Costs of investment can be reliably measured Cost

Subsequently

Entity may choose

Cost Fair value
If the owner’s likelihood of receipt of economic benefits is less than probable, model model
costs incurred are recognized as expenses.
11 12

3
 3/18/2023

Initial measurement
Example
Cost of investment property
Cost = Purchase cost + directly attributable expenditure (i.e. legal fees, An entity purchased land for the purpose of long-term capital
property transfer taxes & other transaction costs) appreciation. Following expenditures related to the acquisition:
Cost of investment property does not include: • Purchase price: $600,000
• Startup cost (unless they are essential in bringing the property to its • Broker’s commission: $30,000
working condition) • Cost of grading the land: $5,000
• Initial operating losses incurred before the investment property • Property transfer tax: $4,000
achieves the planned level of occupancy;
• Property tax paid for the current financial year after the purchase
• Abnormal amounts of wasted materials, labor or other resources date: $ 2,000
incurred in constructing or developing the property What is the cost of the land?

13 14

Answer Subsequent measurement

• Capitalized cost of land: 600,000+30,000+5,000+4,000 = 639,000
• Property tax paid for the current financial year after the purchase
date: $ 2,000 => should be expensed
• Subsequent expenditures may be added to carrying amount of the
investment property if they meet recognition criteria, i.e, innovation
costs
• Entity may choose to measure investment property at either:(*)
• Fair value (fair value model), or
• Depreciated cost less accumulated impairment (Cost model)
• Cost model can be change to fair value model if new policy results in
more reliable and relevant information. However, if the fair value
model is chosen, it is almost impossible to subsequently change to
the cost model(**)

15 16

4
 3/18/2023

Subsequent measurement Subsequent measurement

Fair value model Fair value model
• Fair value: the price that would be received to sell an asset Carrying amount FAIR VALUE
Each Re-measured
or paid to transfer a liability in an orderly transaction
subsequent
between market participants at the measurement date financial
• Carrying amount: the amount at which an asset is reporting
date The difference:
recognized in the statement of financial position Reported in the Profit or Loss

Debit Profit or Loss Loss from fair Debit Investment property Gain from fair
Credit Investment property value change Credit Profit or Loss value change

When choosing fair value model, all investment properties must be measured at fair
value, except for those whose fair value cannot be reliably measured
17 18

Subsequent measurement Subsequent measurement

Fair value model Rare
circumstances Fair value model
Entity acquired investment property for
the first time Where a property has previously been measured at fair value, it
should continue to be measured at fair value until disposal, even
Market for comparable Alternative reliable measurement if comparable market transactions become less frequent or
properties is inactive of fair value is not available market prices become less readily available

fair value cannot be reliably measured

Using cost model

residual value =0

19 20

5
 3/18/2023

Example Answer
• ABC Ltd. applies IFRS and applied the fair value model for its Acquisition cost
investment properties. The company has acquired a property for Dr Investment property: 2
$2million, then it spent a further $7million on renovations to be let as Cr Cash 2
an investment property.
Renovation cost
• At the year end, its fair value is determined to be $10million
Dr Investment property: 7
• Accounting treatment for this property at acquisition & at the year Cr Cash 7
end?
At the year end
Dr Investment property: 1
Cr Fair value gain 1

21 22

Subsequent measurement
Example
Cost model
• Carrying amount = Cost – Accumulated Depreciation – • Can a company opt for the fair value model for an investment
Accumulated Impairment Losses property under construction, while all other completed investment
IAS 16 properties are valued using the cost model?
Property, Plant
&Equipment • No

Except for
• Held-for-sale assets (apply IFRS 5 – Non current assets held for sale and
Discontinued Operations)
• Right-of-use assets held by a lessee & is not held for sale (apply IFRS 16)

23 24

6
 3/18/2023

Transfers Transfers
(2) =>(1) When owner
Transfer to or from investment property is made only when occupation ends
there is a “change in uses” (2)Owner occupied
(1) Investment property Transfer to/from
property
(3)=>(1) When operating lease (1) =>(2) When owner
to a third parties commences occupation commences
Change in management’s
intention for the use of a
property is not an evidence of
(3)Inventories
change in use
(1) =>(3) On commencement of
development with a view to sale
25
26

Transfer Transfer
Determining carrying value Under fair value model
• Under cost model: transfers do not change the • Owner-occupied property => investment property (fair value model)
carrying amount of property. Carrying amount Fair value
Adjust to
• Under fair value model: carrying amount is adjusted (Apply IAS 16 until the
date of change)
(at the date of change )
to its fair value at the date of change
Difference at the date of change: treated in a same way as a
revaluation under IAS 16
❖ Fair value < Carrying amount: Decrease is recognized in the Profit or Loss. However, to the extent that amount is
included in revaluation surplus, decrease is recognized in Other comprehensive Income & reduce revaluation
surplus within equity.
❖ Fair value > Carrying amount: to the extent that the increase reverses previous impairment loss, increase is
recognized in the Profit or Loss. The remaining part of increase is recognized in Other comprehensive Income
27 28

7
 3/18/2023

Transfer
Disposal
Under fair value model
• Inventories => investment property (fair value model) • Disposal: sale, or enter into a financial lease
Carrying amount Fair value
Adjust to
(Apply IAS 02) (at the date of change
Net disposal Carrying
Gains / Losses
proceeds amount of asset
❖ Differences: recognized in the Profit or Loss
recognized in the Profit
or Loss

To determine the date of sale: apply IFRS 15

29 When entering into a financial lease & sale and lease back: apply IAS 17(*) 30

Disclosure
Presentation Disclosures applicable to all investment property
• When material, the aggregate carrying amount of the entity’s • Where it applied the fair value model or cost model
investment property should be presented in the statement of • When classification is difficult, entity should disclosure the criteria
financial position used to identify investment property
• The methods and significant assumptions that were used in
ascertaining the fair values of investment properties.
• The extent to which fair value of investment property is based on a
valuation by an independent valuer who holds a recognized and
relevant professional qualification and has recent experience in the
location and category of IP being valued. If there has been no such
valuation, that fact should be disclosed
31 32

8
 3/18/2023

Disclosure
Disclosures applicable to all investment property
• Disclosure in the Statement of comprehensive income:
• The amount of rental income derived from investment property
• Direct operating expenses arising from investment property that generate and
did not generate rental income during the period
• Cumulative change in fair value recognized in profit or loss on sale of
investment property from a pool of assets in which the cost model is used
into a pool in which the fair value model is used
• The existence and the amount of any restrictions which may potentially affect
the realisability of investment property or the remittance of income and
proceeds from disposal to be received.
• Material contractual obligations to purchase or build investment property or
to make repair, maintenance …
Disclosure
Disclosures applicable to IP using fair value model
• Reconciliation of the carrying amount of investment property at the
beginning and end of period
• Reconciliation between the valuation obtained and the adjusted valuation
included in the financial statement (if there is significant adjustment for the
purpose of financial statement)
• When entity using cost to measure investment property (due to lack of
reliable fair value), above reconciliation should disclose:
• amounts for that investment property separately from others
• Description of that investment property, the reason why fair value cannot be
measured reliably
• On disposal of such investment property, the fact that entity has disposed of
investment property not carried at fair value, its carrying amount at the time of
disposal and gain/losses.

33 34

Disclosure
Example
Disclosures applicable to IP using cost model
• The depreciation methods used
• The useful lives or the depreciation rates used
• The gross carrying amount and accumulated depreciation at the
beginning and the end of period
• Reconciliation of the carrying amount of investment property at the
beginning and end of period
• Fair value of investment property carried under the cost model. When
fair value cannot be reliably estimated, entity should disclose:
• Description of that investment property, the reason why fair value cannot be
measured reliably
• Range of estimates within which fair value is highly likely to lie (if possible)
35 36

9
 3/18/2023

37 38

39

10