IAS 40 – INVESTMENT PROPERTY

ANNOUNCEMENTS

Footnote 2
UPCOMING LECTURES
UNIT R
ASSETS
Non-current assets XXX XXX
Property, plant and equipment 2 XX XXX
Investment property 3 XX XXX
Intangible assets 4 X XXX
Investment in subsidiaries X XXX
Other financial assets
Non-current held for sale 7
Footnote 3
Today’s class

• What is investment property?

Initial measurement
Subsequent measurement
Disclosure (Note and Accounting Policies)

Footnote 4
What is investment property?
• Investment property is property that is held:
 to earn rentals;
 is held for ; or
 both.

• Owner-occupied property is property:

 held for in the production or supply of
goods or services or for administrative
purposes.
Footnote 5
INTENTION IS KEY
• Use property for production/ supply of
goods & services or administration
 Owner-occupied property – IAS 16
• Use to rent/lease it out?
 Investment property - IAS 40
• Keep for capital appreciation
 Investment property – IAS 40
Footnote 6
 Decision table

PPE Inventory Investment

Footnote
property
7
 Accounting treatment
Recognition
• When?
• Recognised when criteria of Framework are met:
✓ it is that future economic benefits will
flow to the entity; and
✓ the cost of the investment property can be
measured .
• Risk and rewards of transfer

Footnote 8
 Accounting treatment
• Initial measurement
 At cost, including transaction costs:
• E.g. of transaction costs?????
 Legal services
 Property transfer taxes
 Excluding:
• Start-up costs except when necessary to bring into condition
• losses
• material and labour costs
✓What if payment is deferred?
• Measure at equivalent -PV of future payments -
will be given to you.

Footnote 9
 Accounting treatment cont.

• Subsequent measurement
✓ model or
✓ Fair value model

✓ Depends on accounting policy

Footnote 10
 Fair value model
• Applied for investment property if fair
value model adopted except….
• Re-measure at end of each reporting period to fair
value
✓ What is fair value?
• Link with value
• Movements in FV = Fair value adjustment
✓ P/L (SoCI)

Footnote 11
 Cost model

• Same cost model as IAS 16-PPE

• Cost Less:
✓ Acc depreciation &
✓ acc impairment loss

Footnote 12
 Dual purpose property
✓ Whether the portions could be sold or leased
separately under operating lease
✓ If YES ….Then split in portions
• If not separable?
Only considered investment property if an
portion is used for
✓ Production or supply of goods and services
✓ Or .

Footnote 13
 Other
Transfers from PPE to Investment Property – Skip
Tax – 40.D - Skip
Disposal
• Derecognise
• When ?
✓ Sold
✓ Finance lease
✓ Permanent from use no FEB expected
from disposal
Footnote 14
 Disclosure

• Criteria used for ,

• Determination of fair value
✓Method and assumptions

• SoCI
✓ income
✓ Operating expenses
✓ Cumulative change in FV
Footnote 15
 Disclosure
• SoFP
✓ Reconciliation CA at Beg & end of period
• Balance at the beg
xxxx
• Additions
xxxx
• Disposals
(xxxx)
Footnote 16
 Class example 1
A Ltd acquired a property (land and office building) on 1 January 20.11
for R2 000 000. It consists of land R500 000 & buildings (with 10
floors) R1 500 000.
The top floor is used by A Ltd for administration purposes. The
remainder of the building is leased out i.t.o. an operating lease at a
rental of R20 000 pm for the remaining useful life of the property,
which is 20 years. Residual value is R200 000.
The property can only be sold as one complete unit.
FV’s on 31 Dec 20.11, Land is R800 000 and Building is R2 000 000.
REQUIRED
Prepare Journal entries at 1 Jan 20.11 and 31 Dec 20.11

Footnote 17
 Solution - Example 1

Footnote 18
 Solution - Example 1

Footnote 19
 Class Example 2
Using the same set of facts in class example 1,
except that the company, A Ltd occupies all 10
floors and uses them for administration purposes.

REQUIRED
Prepare Journal entries at 1 Jan 20.11 and 31 Dec
20.11

Footnote 20
 Solution - Example 2

Footnote 21
 Road map
where to go from here…
• You must now:
✓ Work through the class notes together with Chapter 16 of your textbook.
Focus on the following:
•Nature of Investment Property
•Initial recognition and measurement
•Subsequent measurement (Leave out how FV is determined.)
•Disclosure example in Unit 1
•Work through the class examples
✓ Attempt all the questions in the question bank
✓ Do the question in IFRS applications
• PRE-READ UNIT 4 – Intangible assets

Footnote 22
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