Investment Property

Relevant Standard

• PAS 40 – Investment Property

Definition of
Investment Property
Property (land or building) held
• to earn rentals, or
• for capital appreciation, or
• Both
Rather than for:
• use in the production or supply of
goods or services or for
administrative purposes; or
• sale in the ordinary course of
business.
Partial Own Use
Can be separated:
Owner-occupied – PPE
Rented – Investment property

Cannot be separated:
Owner-occupied:
Insignificant – Investment property
Significant - PPE
Services
Insignificant (Ancillary )
(e.g. security and maintenance
services)
Classification - Investment property

Significant
(e.g. owner-managed hotel)
Classification - PPE
Intra-company Rentals
Separate FS of lessor
Classification - Investment property

Consolidated FS
Classification - PPE
Recognition
Investment property should be
recognized as an asset when:
• it is probable that the future
economic benefits that are
associated with the property will
flow to the entity, and
• the cost of the property can be
measured reliably.
Problem No. 1 and 2

Items Reported as
Investment Property
Problem No. 1
Land – LT capital apprec’n P 15M
Land - unknown future use 30M
Bldg - operating lease 75M
Vacant bldg – oprt’g lease 8M
Property const’d as IP 12M
Redev’d existing property as IP 24M
Bldg - operating lease (40%) 6M
Bldg - operating lease
(security and maintenance) 30M
Total investment properties P 200M

Answer is letter A
Problem No. 2
Land - unknown future use P 5M
Vacant bldg. - operating lease 20M
Hotel owned by Subsidiary
(security and maintenance) 50M
Total Investment Properties P 75M

Answer is letter A
Measurement
Initial recognition

Cost

Subsequent to initial recognition

• Cost model

• Fair value model

Fair value Model
Journal
Investment
entry: property is remeasured at fair
value
Investment property P40,000
 Gains or losses arising from changes in fair
FV adjustment
value recognizedgain-IP (P/L)
in profit or loss P40,000

 Not depreciated

 Not tested for impairment

Answer No. 3 is letter A

Cost Model
 Same with PPE

 Cost less accumulated

depreciation and less
accumulated impairment losses

 Disclose fair value

Answer No. 4 is letter D

Problem No. 5

Sales proceeds P290,000

Carrying amount, 1/1/15

(P220,000 x 37/40) (203,500)

Gain (loss) on disposal P 86,500

Answer is letter A
 Problem No. 6 to 8

Transfers to or from
Investment Property
Transfers
Transfers to, or from, investment
property should only be made when
there is a change in use, evidenced
by:
• commencement of owner-occupation;
• commencement of development with
a view to sale;
• end of owner-occupation; or
• commencement of an operating lease
to another party.
Transfers – Cost Model
When an entity uses the cost model for
investment property, transfers
between categories do not change the
carrying amount of the property
transferred, and they do not change
the cost of the property for
measurement or disclosure purposes.

Therefore, NO gain or loss is recognized.

Problem No. 6
Cost, 1/1/11 P50M
Less Accum. Dep, 12/31/15
(P50M x 5/25) 10M
CA, 12/31/15 P40M

Investment property P40M

Accumulated depreciation 10M
Building P50M

Answer is letter D
Transfers – Fair Value Model

Recognition of Gain/Loss (FV – CA)

From I.P. to PPE – P/L
From I.P. to Inventory – P/L
Journal entries (FV=P120; CA=P100)
From Inventory to I.P. – P/L
Investment property P20
From
FV PPE
Journal to (FV=P120;
entry I.P.gain-IPCA=P100)P20
adjustment
Revaluation
Investment increase –P120
property OCI (RS)
Revaluation decrease P120
PPEInventory – P/L (RL )
P100
Investment property
FV adjustment gain-IP P12020
Journal entries – Transfer of
Property
Fair value A P2,300,000
Less CA, 7/1/15
CA, 1/1/15 P2,000,000
Depreciation
(P2M/20 x 6/12) ( 50,000) 1,950,000
Revaluation increase P 350,000

Building P 300,000
Accumulated depreciation 50,000
Revaluation surplus (OCI) P
350,000

Investment property P2,300,000

Building
P2,300,000
Problem No. 7
Property A:
Depreciation (P 50,000)
FV adjustment
(P2.34M – P2.3M) 40,000
Property B:
FV adjustment
(P1.65M – P1.5M) 150,000
Net amount in P/L - 2015 P 140,000

Answer is letter D
Journal entries – Transfer of
Property
Fair value A P2,300,000
Less CA, 7/1/15
CA, 1/1/15 P2,000,000
Depreciation
(P2M/20 x 6/12) ( 50,000) 1,950,000
Revaluation increase P 350,000

Building P 300,000
Accumulated depreciation 50,000
Revaluation surplus (OCI) P 350,000

Investment property P2,300,000

Building P2,300,000
Answer No. 8 is letter B