ACCOUNTING

for INVESTMENT PROPERTY

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 Classification of Investments
• Subsidiary
• Associate
• Non-marketable securities
• Trading securities
• Available for sale securities
• Held to maturity securities
• Other investments

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 Other Investments
• Investment property
• Bond sinking fund
• Preferred redemption fund
• Plant expansion fund
• Insurance fund
• Cash surrender value
• Contingency fund
• Investment in Joint Ventures

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 INVESTMENT
PROPERTY

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 Investment Property
“Properties which are limited to land or
building or part of a building or both
that are held by an owner or by the
lessee under a finance lease to earn
• Rentals or for
• Capital appreciation

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 Examples of Investment Property
Land and/or building/held/for/under:
• Construction or devt. as invest. prop.
• Long-term capital appreciation
• Under finance lease
• Expected to be leased as oper. lease
• Undetermined future use.
• Leasing out under operating lease
• Others not used for P.A.S.S. & goods.

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 Items not considered investments
Land and/or building held as/for:
• Administrative purposes
• Sale in the ordinary course of business
• Use in the production of goods for sale
• Supply of goods or services
• Constructed on behalf of others or as OOP.
• Owner occupied property (OOP)
• Property occupied by employees
• OOP awaiting disposal

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 Property Held by Lessee under OL
May be classified as investment property if the
following requirements are met:
• The property meets the definition of IP.
• The operating lease is accounted for as if it
were a finance lease.
• The lessee uses the fair value model in
measuring the property interest.
“This alternative is available on a per property
basis provided that once opted all IP should
be consistently accounted on a FV basis.
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 Property partly OOP & IP
• If portions could be sold or leased out
separately should be accounted for
separately.
• If not, investment property if only an
insignificant portion is held for P.A.S.S.
• When insignificant ancillary services
are provided by the entity to the
occupants of the property, the property
is treated as investment property.

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 Property Leased to an Affiliate
• Investment property from the point of
view of the entity that owns it (whether
parent or subsidiary or sister company)
• Owner occupied property from the point
of view of the group as a whole and for
purposes of the preparation of their
consolidated financial statements.

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 Recognition of
Investment Property
Investment property shall be recognized as
an asset when and only when:
• It is probable that the future economic
benefits that are associated with the
investment property will flow to the entity.
• The cost of the investment property can
be measured reliably.

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 Initial Measurement
An investment property should be
measured initially at cost which include:
• Purchase price; and any
• Directly attributable expenditure such as
professional fees, transfer taxes and
other transaction costs.
If self-constructed, its cost include all cost
incurred up to date of completion.
If payment is deferred, its cost is the cash
equivalent price.

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 Items not included in the cost
of investment property
The following cost should not formed part of
the cost of investment property:
• Abnormal cost of material, labor, overhead
• Start up costs (unless necessary)
• Operating losses incurred before the IP
achieves the planned level of occupancy.

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 Measurement subsequent to
initial recognition
• Two possible measurement models:
• Cost model
• Fair value model
• Decide
• as accounting policy
• for all its investment property
• May change policy, but only if for more
relevant/reliable information

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 The cost model
• Cost less any accumulated
– depreciation
– impairment losses
• Repair and maintenance costs are
expensed as incurred, not capitalised
• Fair value of the investment property
should be disclosed

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 The fair value model
In this alternative to the cost model:
• Measurement basis is fair value
• Any changes in fair value are included
in the net income or loss of the period
in which they arise, and shown in the
income statement.
• Revaluation to be done on a class
basis and at every BS date.
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 Transfer to or from
Investment Property
1. Should be made only when there is a
change in use evidenced by
commencement of :
• Owner occupation;
• Development with a view to sale;
• End of owner occupation;
• Operating lease;
• End of construction or development.

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 Accounting for Reclassification
• From investment property at FV to
Inventories
– At fair value on date of change
– Such FV is the initial cost of asset later
• From inventory to investment property at
FV
– At fair value on date of change
– Difference between carrying value and
FV accounted for as gain or loss.

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 Accounting for Reclassification
• From investment property at FV to owner
occupied or PPE
– At fair value on date of change
– Such FV is the initial cost of asset later
• From owner occupied to investment
property at FV
– At fair value on date of change
– Difference between carrying value and
FV accounted for as revaluation allo.

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 Derecognition
Should be derecognized on disposal
or when the investment property is
permanently withdrawn from use
and no future economic benefits are
expected from its disposal. The gain
or loss on disposal should be
recognized as income or expense in
the income statement.

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 Required Disclosure (1)
• The model used
– Whether fair value; or
– Cost model
• If fair value model is used, whether property
held under operating lease are classified as
investment property;
• If classification is difficult, the criteria used to
distinguish between OOP and IP

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 Required Disclosure (2)
• The methods and significant assumptions
– used
– to determine fair value
• Whether or not fair value was based on one
determined by an independent, qualified
valuer or if there was no such valuation;
• Restrictions on the realizability of
investment property’s income or selling
price when disposed.

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 Required Disclosure (3)
• Contractual obligations to purchase,
construct, or develop investment property or
for repairs, maintenance or enhancements;
• The amounts recognized in profit or loss for:
– Rental income from investment property;
– to determine fair value
– Direct operating expenses whether
arising from IP generating rental income
or not.

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 That’s all
folks!!

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