Investment Property

(PAS 40)
 Investment Property
It is property ( land or 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, rather than for;
a. use in the production or supply of goods or services or for
administrative purposes.
b. sale in the ordinary course of business.
**passive investment – capable of generating cash flows independently.
• Owner occupied property is property held (by the owner or by
the lessee a under a finance lease) for use in the production or
supply of foods or services or for administrative purposes.
 Recognition
• An owned investment property shall be recognized as an asset
when, and only when:
(a) It is probable that the future economic benefits that are associated with
the investment property will flow to the entity; and
(b) The cost of the investment property can be measured reliably.
 Initial Recognition
An investment property shall be measured initially at cost plus transaction
costs directly attributable to the acquisition, such as professional fees for
legal services, property transfer taxes and other transaction costs.
 Exclusion from Capitalized Cost
• The following do not constitute part of capitalized cost of an
investment property:
(a) Start up costs (unless they are necessary to bring the property to the condition
necessary for it to be capable of operating in the manner intended by the
management)
(b) Operating losses incurred before the investment property achieves the
planned level of occupancy.
(c) Abnormal amount of wasted materials, labor or other resources incurred in
constructing or developing the property.
 Subsequent Measurement
• PAS allows the entity to choose as its accounting policy either:
• (a) choose either the fair value model or the cost model for all investment property
backing liabilities that pay a return linked directly to the fair value of, or returns from,
specified assets including that investment property.
• (b choose either the fair value model or the cost method for all other investment
property, regardless of the choice maid.
 Disposal of Investment Propert

• An investment property shall be derecognized on

disposal when;
• (a) the investment property is permanently withdrawn from
use
• (b) no future economic benefits are expected from its disposal.
** gains and losses arises from disposal shall be accounted under P & L.
 Exploration for and Evaluation of Mineral
Resources Assets (PFRS 6)
• The standard does not apply to the following expenditures
incurred:
• (a) before the exploration for and evaluation of mineral resources such as
expenditures incurred before the entity has obtained the legal right to
explore the specific area.
• (b) after the technical feasibility and commercial viability of extracting a
mineral resources are demonstrable.
 Initial Measurement
• Exploration and Evaluation Assets shall be measured at cost.
 Elements of Cost of Exploration and
Evaluation Assets
• (a) acquisition of rights to explore
• (b) topographical, geological, geochemical and geophysical studies.
• (c.) exploratory drilling
• (d) trenching
• (e.) sampling
• (f) activities in relation to evaluating the technical feasibility and commercial
viability of extracting a mineral resources.
 Subsequent Measurement
• Cost model or revaluation model .
• **If revaluation model is applied (either the model in PAS 16 PPE or the
model in PAS 38 Intangible Assets) it shall be consistent with the
classification of the assets.

• Full Cost Method vs. successful efforts methods (most commonly used
accounting method in oil and gas industry.
• Under Full cost method, all cost incurred in acquiring, exploring, and
developing within a broadly defined cost center are capitalized and
amortized. Under this method, costs are capitalized even if a specific project
in the cost center was a failure.
• Under the successful efforts method, many costs are capitalized and
amortized. However, unlike in full cost method, unsuccessful acquisition and
exploration activities are charged to expense. Costs whose outcome is
unknown are either expense or capitalized.
 Changes in Accounting Policy
• An entity shall change an accounting policy only if the change:
• (a) is required by a PFRS
• (b) results in the financial statements providing reliable and more
relevant information about the effects of transactions, other events
or condition on the entity’s financial position financial performance
or cash flows.
 Financial Statement Presentation
• Classification of Exploration and Evaluation Assets
• *An entity shall classify exploration and evaluation assets as tangible or
intangible according to the nature of the asssets acquired and apply the
classification consistently.
Reclassification of Exploration and Evaluation
Assets
• Impairment
Facts or circumstances that may indicate that impairment testing is required,
(a) the period for which the entity has the right to explore in the specific area has expired
or is expected to expire in the near future, unless the right is expected to be renewed.
(b) Substantive expenditure on further exploration and evaluation activities in the specific
area is neither budgeted nor planned.
(c.) exploration and evaluation activities in the specific area have not led to the discovery
of commercially viable quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area.
• (d) although development in the specific area is likely to proceed, there is
sufficient data to indicate that the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful
development or by sale.
 Non-current asset held for sale (PFRS 5)
• Noncurrent assets are assets that include amounts expected to be recovered
more than twelve months after the reporting period.
• Held for sale refers to the carrying amount of a noncurrent asset which is
expected to be recovered mainly through selling the asset rather than through
usage.
• Disposal Group refers to a group of assets and possibly some liabilities that
an entity intends to dispose of in a single transaction.
 Non-current asset held for sale (PFRS 5)
• PFRS requires:
• (a) assets that meet the criteria to be classified as held for sale to be
measured at the lower of carrying amount and fair value less cost to sell,
and depreciation on such assets to cease.
• (b) assets that meet the criteria to be classified as held for sale to be
presented separately in the statement of financial position and the results
of discontinued operations to be presented separately in the statement
of comprehensive income.
 Other Considerations
• Noncurrent assets or disposal groups classified as held for sale should not
be depreciated.