IAS 40

INVESTMENT PROPERTY

L O V E LY J O Y B . A L A R C O N
DEFINITIONS

• Investment property – held to earn rentals or for capital

appreciation or both, rather that for:
a. Use in the production or supply of goods or services or
for administrative purposes, or
b. Sale in the ordinary course of business.
• Owner-occupied property – held by the owner for use in the
production or supply of goods or services or for administrative
purposes.
DEFINITIONS

• Fair value – price that would be received to sell an asset or paid to

transfer a liability in an ordinary transaction.
• Cost – amount of cash or cash equivalents paid or the fair value of
other consideration given to acquire an asset at the time of its
acquisition or construction.
• Carrying amount – amount at which an asset is recognized in the
statement of financial position.
EXAMPLES OF INVESTMENT
PROPERTY
• Land held for long-term capital appreciation
• A building owned by the reporting entity and leased out under an
operating lease.
• A building held by a parent and leased to a subsidiary
• Property that is being constructed or developed for future use as an
investment property.
ILLUSTRATION

• ABC Corp. owns a piece of land. The directors have not yet decided
whether to build a factory on it for use in its business or to keep it
and sell it when its value has risen.
• Would this be classified as an investment property under IAS 40?
• Yes. If an entity has not determined that it will use the land either as
an owner-occupied property or for short-term sale in the ordinary
course of business, the land is considered to be held for capital
appreciation.
IAS 40

• IAS 40 Investment Property prescribes the accounting treatment for

investment property and related disclosure requirements.
RECOGNITION

• Investment property should be recognized as an asset when two

conditions are met:
a. It is probable that the future economic benefits that are
associated with the investment property will flow to the entity.
b. The cost of the investment property can be measured
reliably.
INITIAL MEASUREMENT

• An investment property should be measured initially at its cost,

including transaction costs.
MEASUREMENT SUBSEQUENT TO
INITIAL RECOGNITION
IAS requires an entity to choose between two models:
• The fair value model
• The cost model
FAIR VALUE MODEL

• After initial recognition, an entity that chooses the fair value model
should measure all of its investment property at fair value.
• A gain or loss arising from a change in the fair value of an
investment property should be recognized in net profit or loss for
the period in which it arises.
COST MODEL

• Assets held by lessees as right-of-use assets are measured at cost.

Investment property should be measured at depreciated cost, less
any accumulated impairment losses.
CHANGING MODELS

• Once the entity has chosen the fair value or cost model, it should
apply to all its investment property. Change is only permitted only if
this results in a more appropriate presentation.
 IAS 38
INTANGIBLE ASSETS
DEFINITION

• An intangible asset is an identifiable non-monetary asset without

physical substance. The asset must be:
a. Controlled by the entity as a result of past events.
b. Something from which the entity expects future economic
benefits to flow
• Examples of items that might be considered as intangible assets
include computer software, licenses, patents, copyrights, trademarks
and franchise.
EXCHANGES OF ASSETS

• If one intangible asset is exchanged for another, the cost of the

intangible asset is measured at fair value unless:
a. The exchange transaction lacks commercial substance, or
b. The fair value of neither the asset received nor the asset
given up can be measured reliably.
• Otherwise, the cost is measured at the carrying amount of the asset
given up.
INTERNALLY GENERATED GOODWILL

• Internally generated goodwill shall not be recognized as an asset

because it is difficult to identify and measure reliably. It should not
be recognized because of its impossibility of identification and
difficulty of reliable measurement.
COST OF AN INTERNALLY GENERATED
INTANGIBLE ASSET
• The costs allocated to an internally generated intangible asset should
be only costs that can be directly attributed on a consistent basis of
creating, producing or preparing the asset for its intended use.
• The cost of an internally generated intangible asset is the sum of the
expenditure incurred from the date when the intangible asset first
meets the recognition criteria.
RECOGNITION OF AN EXPENSE

• All expenditure related to an intangible which does not meet the

criteria for recognition either as an identifiable intangible asset or as
goodwill arising on an acquisition should be expensed as incurred.
USEFUL LIFE

• An entity should assess the useful life of an intangible asset, which

may be finite or indefinite. An intangible asset has an indefinite
useful life when there is no foreseeable limit to the period over
which the asset is expected to generate net cash inflows for the
entity.
INTANGIBLE ASSETS WITH
INDEFINITE USEFUL LIVES
• An intangible asset with an indefinite useful life should not be
amortized.
• The useful life of an intangible asset that is not being amortized
should be reviewed each year to determine whether it is still
appropriate to assess its useful life as indefinite.
DISPOSALS/RETIREMENT OF
INTANGIBLE ASSETS
• An intangible asset should be eliminated from the statement of
financial position when it is disposed of or when there is no further
expected economic benefit from its future use.
• On disposal, the gain or loss arising from the difference between the
net disposal proceeds and the carrying amount of the asset should be
taken to profit or loss as a gain or loss on disposal.
IN SUMMARY:

• An intangible asset should be recognized if, and only if, it is probable that
future economic benefits will flow to the entity and the cost of the asset can be
measured reliably.
• An asset is initially recognized at cost and subsequently carried either at cost or
revalued amount.
• Costs that do not meet the recognition criteria should be expensed as incurred.
• An intangible asset with a finite useful life should be amortized over its useful
life. An intangible asset with an indefinite useful life should not be amortized.
THE END