INVESTMENT PROPERTY PAS PA S 40 Definition Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. Examples of investment property: 1.
Land held for long-term capital appreciation
2.
Land held for undecided future use
3.
uilding leased out under an operating lease
4.
!acant building held to be leased out under an operating lease
"he following are not investment property and# therefore# are outside the scope of I$% &': 1.
roperty held for use in the production or supply of goods or services or for administrative purposes
2.
roperty held for sale in the ordinary course of business or in the process of construction of development for such sale (I$% * Inventories)
3.
roperty being constructed or developed on behalf of third parties (I$% ++ ,onstruction ,ontracts)
4.
wner-occupied property (I$% + roperty# lant and E/uipment)# including property held for future use as owner-occupied property# property held for future development and subse/uent use as owner-occupied property# property occupied by employees and owner-occupied property awaiting disposal
5.
roperty that is being constructed of developed for use as an investment property and
6.
roperty leased to another entity under an finance lease.
Other Classification Issues Property held under an operating lease. $ property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property provided that: •
•
•
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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 I$% +0 Leases and the lessee uses the fair value model set out in this %tandard for the asset recognised.
$n entity may ma1e the foregoing classification on a property-by-property basis. Partial own use. If the owner uses part of the property for its own use# and part to earn rentals or for capital appreciation# and the portions can be sold or leased out separately# they are accounted for separately. "herefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately# the property is investment property only if the owner-occupied portion is insignificant. Ancillary services. If the enterprise provides ancillary services to the occupants of a property held by the enterprise# the appropriateness of classification as investment property is determined by the significance of the services provided. If those services are a relatively insignificant component of the arrangement as a whole (for instance# the building owner supplies security and maintenance services to the lessees)# then the enterprise may treat the property as investment property. 2here the services provided are more significant (such as in the case of an owner-managed hotel)# the property should be classified as owner-occupied. Intracompany rentals. roperty rented to a parent# subsidiary# or fellow subsidiary is not investment property in consolidated financial statements that include both the lessor and the lessee# because the property is owner-occupied from the perspective of the group. 3owever# such property could /ualify as investment property in the separate financial statements of the lessor# if the definition of investment property is otherwise met.
Recognition of investment property 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 enterprise# and *. the cost of the property can be reliably measured.
Initial easureent of investment property Investment property is initially measured at cost# including transaction costs. %uch cost should not include start-up costs# abnormal waste# or initial operating losses incurred before the investment property achieves the planned level of occupancy.
Measureent su!se"uent to initial recognition I$% &' permits enterprises to choose between: 1.
a fair value model and
2.
a cost model.
ne method must be adopted for all of an entity4s investment property. ,hange is permitted only if this results in a more appropriate presentation. I$% &' notes that this is highly unli1ely for a change from a fair value model to a cost model. #air $alue o%el 2/8
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Investment property is remeasured at fair value 5ains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.
2here a property has previously been measured at fair value# it should continue to be measured at fair value until disposal# even if comparable mar1et transactions become less fre/uent or mar1et prices become less readily available. Cost Mo%el
$fter initial recognition# investment property is accounted for in accordance with the cost model as set out in IAS 16# roperty# lant and E/uipment 6 cost less accumulated depreciation and less accumulated impairment losses.
Transfers to or fro In$estent Pro&ert' Classification "ransfers to# or from# investment property should only be made when there is a change in use# evidenced by: 1. 2. 3. 4. 5.
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) or end of construction or development (transfer from property in the course of construction7development to investment property.
"he following rules apply for accounting for transfers between categories:
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1.
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 4cost4 of the property under its new classification
2.
for a transfer from owner-occupied property to investment property carried at fair value# I$% + should be applied up to the date of reclassification. $ny difference arising between the carrying amount under I$% + at that date and the fair value is dealt with as a revaluation under I$% +
3.
for a transfer from inventories to investment property at fair value# any difference between the fair value at the date of transfer and it previous carrying amount should be recognised in net profit or loss for the period and
4.
when an entity completes construction7development 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 net profit or loss for the period.
Dis&osal •
•
derecognised investment property on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. 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.
whether the fair value or the cost model is used if the fair value model is used# whether property interests held under operating leases are classified and accounted for as investment property if classification is difficult# the criteria to distinguish investment property from owner-occupied property and from property held for sale. the methods and significant assumptions applied in determining the fair value of investment property. the extent to which the fair value of investment property is based on a valuation by a /ualified independent valuer if there has been no such valuation# that fact must be disclosed. the amounts recognised in profit or loss for: a. rental income from investment property b. direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period and c. direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period. restrictions on the realisability of investment property or the remittance of income and proceeds of disposal. contractual obligations to purchase# construct# or develop investment property or for repairs# maintenance or enhancements.
$dditional isclosures for the 8air !alue 9odel 1.
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a reconciliation between the carrying amounts of investment property at the beginning and end of the period# showing additions# disposals# fair value
2. 3.
ad;ustments# net foreign exchange differences# transfers to and from inventories and owner-occupied property# and other changes. significant ad;ustments to an outside valuation (if any) if an entity that otherwise uses the fair value model measures an item of investment property using the cost model# certain additional disclosures are re/uired.
$dditional isclosures for the ,ost 9odel 1. 2. 3. 4.
5.
the depreciation methods used the useful lives or the depreciation rates used the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period a reconciliation of the carrying amount of investment property at the beginning and end of the period# showing additions# disposals# depreciation# impairment recognised or reversed# foreign exchange differences# transfers to and from inventories and owner-occupied property# and other changes the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably# additional disclosures are re/uired# including# if possible# the range of estimates within which fair value is highly li1ely to lie.
PRO-OR!A "#$RI"S !easurement after initial recognition% Cost Model:
epreciation
Impairment
epreciation expense - building held as investment property $ccumulated depreciation - building held as investment property Impairment loss - building held as investment property $ccumulated impairment loss - building held as investment property
Fair Value Model Land7uilding
held as investment property 8air value gain on investment property < 8air value loss on investment property Land7uilding held as investment property
$ransfers from investment property to owner occupied property% 5/8
xxx xxx xxx xxx xxx xxx xxx xxx
Land Land held as investment property
xxx
uilding $ccumulated depreciation - building held as investment property uilding held as investment property $ccumulated depreciation 6 building
xxx
Cost Model
xxx
Fair Value Model Land7uilding
xxx xxx xxx
held as investment property 8air vaue gain on investment property < 8air value loss on investment property Land7uilding held as investment property
xxx
Land7uilding Land7uilding held as investment property
xxx
xxx xxx xxx
xxx
$ransfers from investment property to inventory% Cost Model
Inventory Land7uilding held as investment property
xxx xxx
Fair Value Model Land7uilding
held as investment property 8air vaue gain on investment property < 8air value loss on investment property Land7uilding held as investment property
xxx
Inventory Land7uilding held as investment property
xxx
xxx xxx xxx
xxx
&uilding previously constructed is completed and transferred to investment property Cost Model
Fair Value Model
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uilding held as investment property uilding in progress
xxx
uilding held as investment property uilding in progress 8air value gain on investment property
xxx
xxx
xxx xxx
Inventory item of land or 'uilding is reclassified as investment property Cost Model
Land7uilding held as investment property Inventory
Fair Value Model Land7uilding
held as investment property
xxx xxx xxx
Inventory 8air !alue 5ain on transfer of inventory to investment property
xxx xxx
$ransfers from owner occupied property to investment property Cost Model
Land held as investment property Land
xxx
uilding held as investment property $ccumulated depreciation - building $ccumulated depreciation - building held as investment property uilding
xxx xxx
Land held as investment property Land
xxx
uilding held as investment property $ccumulated depreciation - building uilding
xxx xxx
xxx
xxx xxx
Fair Value Model
2hen 8! = ,!
2hen 8! > ,!Land held as investment property
xxx xxx
xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
uilding
xxx
#ote% 2hen reclassification is made from owner occupied property to investment property that will be carried at fair value# any excess of the previous carrying amount over the fair value at the date of transfer is charged to
I#A#(IA) S$A$"!"#$ PR"S"#$A$IO# (an% hel% as in$estent &ro&ert' )uil%ing hel% as in$estent &ro&ert' Accuulate% %e&reciation * !uil%ing hel% as in$estent &ro&ert' Accuulate% i&airent loss * !uil%ing hel% as in$estent &ro&ert' )uil%ing in &rogress #air $alue gain on in$estent &ro&ert' #air $alue loss on in$estent &ro&ert' #air $alue gain on transfer of in$entor' to in$estent &ro&ert' #air $alue loss on transfer of in$entor' to in$estent &ro&ert'
9ay *''@
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Investment property# noncurrent asset Investment property# noncurrent asset ,ontra-asset account# deducted from investment property ,ontra-asset account# deducted from investment property ?oncurrent asset ther operating income ther operating expenses ther operating income ther operating expenses
