CONCEPTUAL FRAMEWORK

&
ACCOUNTING STANDARDS
2020 Edition

Lecture Aid
By: Zeus Vernon B. Millan

1
PAS 40 Investment Property
Learning Competencies
• Define an investment property.
• State the initial and subsequent measurements of
investment property.
• Apply the fair value model of accounting for
investment property.

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Investment property
• Investment property is “property (land or a building –
or a part of a building – or both) held (by the owner or
by the lessee under finance lease) 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 business.”
(PAS 40)

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Investment property vs. PPE

Investment property Owner-occupied property

 Held to earn rentals or for
capital appreciation or both.
 Generates cash flows largely
independently of the other
assets held by an entity
 Includes only land and
building
 Accounted for under PAS 40
 Held for use in the production
or supply of goods or services
or for administrative purposes.
 Generates cash flows in
conjunction with the other
assets held by an entity.
 May include assets other than
land and building
 Accounted for under PAS 16

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Examples of investment property
a. Land held for long-term capital appreciation rather than for
short-term sale in the ordinary course of business.
b. Land held for a currently undetermined future use.
c. A building owned by the entity (or held by the entity under a
finance lease) and leased out under one or more operating
leases.
d. A building that is vacant but is held to be leased out under one or
more operating leases.
e. Property that is being constructed or developed for future use as
investment property.
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Examples of items that are not investment property
a. Property intended for sale in the ordinary course of business or
property acquired exclusively with a view to subsequent disposal
in the near future or for development and resale.
b. Property being constructed or developed on behalf of third parties
(PFRS 15 Revenue from Contracts with Customers).
c. Owner-occupied property (PAS 16) and owner-occupied property
awaiting disposal.
d. Property that is leased to another entity under a finance lease.

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Property that is partly investment property and partly owner-
occupied

• If the portions could be sold separately (or leased out separately under a
finance lease), an entity accounts for the portions separately. The portion
being rented out under operating lease is classified as investment
property and the portion used as owner-occupied is classified as
property, plant, and equipment.

• If the portions could not be sold separately, the property is

investment property only if an insignificant portion is held for use
in the production or supply of goods or services or for administrative
purposes. If the owner-occupied portion is significant, the entire property
is classified as property, plant, and equipment.

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Ancillary services to occupants

• When ancillary services are provided to the occupants of

a property held, the property is classified as investment
property if the services are insignificant to the
arrangement as a whole.

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Measurement

• Initial: Cost

• Subsequent: Either the Cost model or Fair value

model

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• The following are excluded from the cost of
investment property and are expensed
immediately:
a. Start-up costs (unless they are necessary to bring the
property to the condition necessary for it to be capable of
operating in the manner intended by management)
b. Operating losses incurred before the investment property
achieves the planned level of occupancy
c. Abnormal amounts of wasted material, labor or other
resources incurred in constructing or developing the property

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Change in accounting policy

• A change from the cost model to the fair value is

accounted for prospectively.
• A change from the fair value model to the cost model is
not permitted.

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Determining fair value

• PAS 40 requires all entities to determine the fair value

of investment property whether it uses the cost model or
fair value model. Fair values determined are used for
measurement and disclosure purposes if the entity
uses the fair value model and for disclosure purposes
only if the entity uses the cost model.

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Fair value model
• After initial recognition, an entity that chooses the fair value model
shall measure all of its investment property at fair value, except in
cases where the exemptions under PAS 40 applies.
• Changes in fair values are recognized in profit or loss.
• Depreciable assets classified as investment property measured
under fair value model are not depreciated.
• If the fair value of an item of investment property cannot be
determined reliably on initial recognition, such item is
subsequently measured under the cost model.

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Cost model

• After initial recognition, an entity that chooses the cost model

shall measure all of its investment property at cost less any
accumulated depreciation and impairment losses in
accordance with PAS 16 Property, plant, and equipment.

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Transfers
• Transfers to, or from, investment property shall be made when, and
only when, there is a change in use, evidenced by:
a. Commencement of owner-occupation, for a transfer from investment
property to owner-occupied property;
b. Commencement of development with a view to sale, for a transfer
from investment property to inventories;
c. End of owner-occupation, for a transfer from owner-occupied property
to investment property; or
d. Commencement of an operating lease to another party, for a transfer
from inventories to investment property.

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 APPLICATION OF CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION

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OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END
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