IPSAS 16

Investment Property

This material is the property of Department of Accounting and Finance, CoBE, AAU.
Permission must be obtained from the Department prior to reproduction 1
 RELEVANT STANDARDS

Topic List Standards

Property, plant and equipment IPSAS 17

Inventory IPSAS 12

Impairment IPSAS 21/26

Lease IPSAS 13

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 Learning Objectives

At the completion of studying this standard, you will be able to:

• Define and Identify Investment property
• Determine the cost of Investment property
• prescribe the accounting treatment of Investment property,
• Identify disclosure requirements for the same

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 The Scope of IPSAS 16
 The standard applies to a company that prepares its financial
statement uses this standard in accounting for investment
property including
 a leased investment property on lessees book
 On a lessor’s book of an asset leased under operating lease
 This Standard does not apply to:
 Biological assets related to agricultural activity (see IPSAS 27,
Agriculture and IPSAS 17, Property, Plant, and Equipment); and
 Mineral rights and mineral reserves such as oil, natural gas, and
similar non-regenerative resources.

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 The Scope of IPSAS 16...
 The standard does not deal with matters covered in
IPSAS 13, lease, including:
 Classification of leases as finance leases or operating leases;
 Recognition of lease revenue from investment property (see also
IPSAS 9, Revenue from Exchange Transactions);
 Measurement in a lessee’s financial statements of property
interests held under a lease accounted for as an operating lease;
 Measurement in a lessor’s financial statements of its net
investment in a finance lease;
 Accounting for sale and leaseback transactions; and
 Disclosure about finance leases and operating leases.

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 Definition
 Carrying amount: is the amount at which an asset is recognized in
the statement of financial position.
 Cost: is the 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.
 Investment property: is property (land or a building – or part of a
building – or both) held 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; or (b) Sale in the
ordinary course of operations.
 Owner-occupied property: is property held (by the owner or by
the lessee) for use in the production or supply of goods or services,
or for administrative purposes.
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Cases - Classification of property

Situation Classification

A Hospital acquires a land for long term appreciation. Investment

What is the classification of the land? property

1. The city Administration finished the construction of 200 Inventory

blocks of condominium buildings for sale to the public.
What is the classification of the building?
2. A housing department may hold a large housing
stock used to provide housing to low income PPE

families at below market rental?

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Cases - Classification of property
Situation Classification
A university owns a 10 floor office block. 6 floors-
It uses 4 floors as its headquarters offices. Investment property
The remaining 6 floors are leased out to tenants. 4 floors-
Under the laws in A's country, A is able to sell or PP&E
lease out under finance lease each one of the floors
separately

A hospital owns a 10 floor office block. Investment Property

It uses 4 floors for its headquarters offices.
The remaining 6 floors are leased out under
operating lease to tenants.
Under the laws in B's country, B is not able to sell
or lease out under finance lease each one of the
floors. It can sell or lease out under finance lease
the whole building as a whole 11
Cases - Classification of property
Situation Classification
1.A certain government has a hotel/hostel which is fully PP & E
managed by one of its general property management
agency.
2.A certain government has a hotel/hostel whose
management services and provision of those services Investment property
are outsourced entirely to a third-party vendor

A hospital owns a 10-storey office block and leases out Investment property
each floor to tenants under operating leases. The
hospital also provides cleaning services for the lessees
of the building

A university owns a 10-storey office block. It rents out PP&E

fully furnished offices under short-term agreements,
which include a range of secretarial services and 12
 Initial Recognition & Measurement IP
Recognition
 Investment property should be recognized as an asset when two

conditions are met.

 It is probable that the future economic benefits that are associated

with IP will flow to the entity.

 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.
 Leased investment property is measured according to IPSAS 13 Leases

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 Subsequent Measurement
 After initial recognition, an entity has a choice of methods to account for
investment property:
 Fair value model (FVM), or
 Cost model (CM)
 Must apply one model to all of its investment property
 It should not change from one model to the other unless the change will
result in a more appropriate presentation.
 It is highly unlikely that a change from the FV model to the CM will result
in a more appropriate presentation.

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 Subsequent Measurement
Fair value model (FVM):
- Assets are measured at fair value
- If choosen, apply to all
- Changes in fair value are recognized in profit or loss(surplus-
deficit) in period of change;
- No depreciation and Impairment is recorded
- Once started, fair values continue to be used even if difficult
to measure reliably 18
 Subsequent Measurement

The cost model

- If choose, applies cost model described in IPSAS 17 to all
- Assets reported at cost less accumulated depreciation and accumulated
impairment losses
- Depreciation expense recognized each period; 0 residual value( FV is lready
said to be not determinable)
- in exceptional cases, once cost model is started by claiming that FV may not
be measured consistently, be applied until disposal IPSAS 17; and all other IPs
may be measured at FV.
- Disclose the fair value of IP 19
 Case – Measurement after Recognition

Investment property is acquired August 11, 2008, at a cost

of Br200.

Fair values:

December 31, 2008 - Br190

December 31, 2009 - Br198

December 31, 2010 - Br205

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 Case – Measurement after Recognition
FVM example:

Dec.31/08 Loss in value 10

Investment property 10

Dec.31/09 Investment property 8

Gain in value 8

Dec.31/10 Investment property 7

Gain in value 7

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 Transfers: When

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Owner-
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(IPSAS 17) (IPSAS 12)
 IPSAS 16- Derecognition

Derecognize investment property

 On disposal – when sold or transferred under a

finance lease, or
 On retirement – when permanently removed

from use and no benefits are expected from its

disposal
 Gains and losses on disposal generally
recognized in profit or loss (surplus-deficit)
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 IPSAS 16- Disclosures
General disclosures:

 whether the FVM or the CM is applied

 criteria used to distinguish between owner-occupied, investment
property, and property held for sale where judgment is needed
 methods and assumptions underlying fair value measurements,
including extent to which market-related evidence is used
 extent to which the fair values were determined by an experienced,
professional, and independent appraiser
 existence of restrictions and contractual obligations related to the
properties
 amounts and specific types of income and expense recognized in
profit or loss
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Many Thanks!

Questions
&
Comments

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