IAS 40 Investment property Definition Investment Property Investment property is property held by the owner to earn rentals or for capital appreciation or both. 2 Examples Examples of investment property Land held for long term capital appreciation Land held for undetermined future use Building leased out under an operating lease Vacant building to be leased out under an operating lease Property that is being constructed or developed for future use as investment property 3 1
Exclusions Property held for use in the production or supply of goods or services or for administrative purposes (IAS 16 Property, Plant and Equipment) Property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories) Property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts) Owner occupied property (IAS 16 Property, Plant and Equipment), including property held for future use as owner occupied property, property held for future development and subsequent use as owneroccupied property, property occupied by employees and owner occupied property awaiting disposal Property leased to another entity under a finance lease 4 Example A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property provided that: The rest of the definition of investment property is met The operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases The lessee uses the fair value model set out in this Standard for the asset recognised 5 Recognition Investment property should be recognised as an asset when it is probable that the future economic benefits that are associated with the property will flow to the entity and the cost of the property can be reliably measured. 6 2
Measurement Investment property is initially measured at cost, including transaction costs Such cost should not include start up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy. 7 Measurement IAS 40 permits entities to choose between: A fair value model, and A cost model. 8 Measurement One measurement method must be adopted for all of an entity s investment property. Change is permitted only if this results in a more appropriate presentation. 9 3
Fair Value Model Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm s length transaction. 10 Fair Value Model Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm s length transaction. 11 Fair Value Model Gainsorlossesarisingfromchangesinthefair value of investment property must be included in net profit or loss for the period in which it arises. 12 4
Cost Model After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16, Property, Plant and Equipment cost less accumulated depreciation and less accumulated impairment losses. 13 s to, or from, investment property should only be made when there is a change in use, evidenced by one or more of the following: 14 Commencement of owner occupation (transfer from investment property to owner occupied property) Commencement of development with a view to sale (transfer from investment property to inventories) End of owner occupation (transfer from owner occupied property to investment property) Commencement of an operating lease to another party (transfer from inventories to investment property) Endofconstructionordevelopment(transferfromproperty in the course of construction/development to investment property 15 5
For a transfer from investment property carried at fair value to owner occupied property or inventories, the fair value at the change of use is the cost of the property under its new classification 16 For a transfer from owner occupied property to investment property carried at fair value, IAS 16 should be applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16 17 For a transfer from inventories to investment property at fair value, any difference between thefairvalueatthedateoftransferandit previous carrying should be recognised in profit or loss 18 6
When an entity completes construction/development of an investment property that will be carried at fair value, any difference between the fair value at the date of transfer and the previous carrying amount should be recognised in profit or loss 19 When an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and they do not change the cost of the property for measurement or disclosure purposes. 20 Disposal An investment property should be derecognised on disposal or when the investment property is permanently withdrawn form use and no future economic benefits are expected from its disposal. 21 7
Disposal The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and the carrying amount of the asset and should be recognised as income or expense in the income statement. 22 IAS 40 Investment property 8