Investment Property

IAS – 40

(Chapter 2)
IAS 40- Investment Property

Land/building held to earn rentals OR for capital appreciation

Investment Property
YES NO

 To earn rentals Production OR supply of g/s IAS 16

Owner-occupied
 For capital appreciation Used for Administrative purposes property
Sale in ordinary course of business IAS 2

IAS 40
Examples- Investment Property

A situation where a company occupies a premises but rents out

certain floors to other companies. How to classify this asset?
• Part occupied will be classed as PPE as per IAS 16
• Floors rented out will be classed as investment property per IAS 40

A situation where a building is rented by a subsidiary of the

company. How to classify this asset?
• Classed as Investment Property (IAS 40) in individual accounts
• Classed as PPE (IAS 16) in consolidated accounts
Accounting Treatment of Investment Property

 Initial Measurement- At cost

 Choice for subsequent measurement of investment property (Should be
consistent among all investment properties)

Subsequent Measurement of Investment property

Cost Model Fair Value Model

Costs • Revaluation at the end of each year

Less • Gain/loss is shown in SPL (not OCI)
Accumulated Depreciation • No depreciation is charged
Example
Reclassification of Property

If an asset is transferred from being used as PPE to being rented out as
investment property:
• FV Model- asset must first be revalued per IAS 16 (creating a revaluation surplus)
and then transferred into investment property.
• Cost Model- asset is transferred into investment properties at the current carrying
amount and continues to be depreciated

If an asset is transferred from being rented out as investment property

into being used as PPE:
• FV Model- Revalue the property first per IAS 40 (taking the gain or loss to the SPL)
and then transfer to PPE, at fair value
• Cost Model- Asset is transferred into PPE at the current carrying amount and
continues to be depreciated
Example