IAS 40 : Investment Property Flashcards
(114 cards)
1
Q
Definitions and Scope 1
An investment property is defined in IAS 40 as property (land or a building – or part of a building – or both) held by the owner or by the lessee as a right-of-use asset 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.
[IAS 40.5].
A
An investment property is defined in IAS 40 as property (land or a building – or part of a building – or both) held by the owner or by the lessee as a right-of-use asset 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.
[IAS 40.5].
2
Q
Definitions and Scope 2
This means that any entity, whatever the underlying nature of its business, can hold investment property assets if its intention on initial recognition (either by acquisition or change in use) is to hold them for rent or for capital appreciation or both.
Subsequent to initial recognition, assets might be reclassified into and from investment property.
A
This means that any entity, whatever the underlying nature of its business, can hold investment property assets if its intention on initial recognition (either by acquisition or change in use) is to hold them for rent or for capital appreciation or both.
Subsequent to initial recognition, assets might be reclassified into and from investment property.
3
Q
Definitions and Scope 3
‘Owner-occupied’ property is defined as property held by the owner or by the lessee as a right-of-use asset for use in the production or supply of goods or services
or for administrative purposes. [IAS 40.5].
Such property falls outside the scope of IAS 40
and is accounted for under IAS 16, together with IFRS 16, if relevant.
A
‘Owner-occupied’ property is defined as property held by the owner or by the lessee as a right-of-use asset for use in the production or supply of goods or services
or for administrative purposes. [IAS 40.5].
Such property falls outside the scope of IAS 40
and is accounted for under IAS 16, together with IFRS 16, if relevant.
4
Q
Definitions and Scope 4
IAS 40 does not apply to:
• biological assets related to agricultural activity (see IAS 41 – Agriculture – and IAS 16); and
• mineral rights and mineral reserves such as oil, natural gas and similar nonregenerative resources.
[IAS 40.4].
A
IAS 40 does not apply to:
• biological assets related to agricultural activity (see IAS 41 – Agriculture – and IAS 16); and
• mineral rights and mineral reserves such as oil, natural gas and similar nonregenerative resources.
[IAS 40.4].
5
Q
Definitions and Scope 5
Biological assets that are physically attached to land (for example, trees in a plantation forest) are measured at their fair value less estimated point-of-sale costs separately from the land. [IAS 41.12]. However, the land related to the agricultural activity is accounted for
either as property under IAS 16 or investment property under IAS 40. [IAS 41.2].
A
Biological assets that are physically attached to land (for example, trees in a plantation forest) are measured at their fair value less estimated point-of-sale costs separately from the land. [IAS 41.12]. However, the land related to the agricultural activity is accounted for
either as property under IAS 16 or investment property under IAS 40. [IAS 41.2].
6
Q
Definitions and Scope 6
What primarily distinguishes investment property from other types of property interest is that its cash flows (from rental or sale) are largely independent of those from other assets held by the entity. By contrast, owner-occupied property used by an entity for administrative purposes or for the production or supply of goods or services does not generate cash flows itself but does so only in conjunction with other assets used in the production or supply process. IAS 16 applies to owned owner-occupied property and IFRS 16 applies to owneroccupied property held by a lessee as a right-of-use asset. [IAS 40.7]
A
What primarily distinguishes investment property from other types of property interest is that its cash flows (from rental or sale) are largely independent of those from other assets held by the entity. By contrast, owner-occupied property used by an entity for administrative
purposes or for the production or supply of goods or services does not generate cash flows itself but does so only in conjunction with other assets used in the production or supply process. IAS 16 applies to owned owner-occupied property and IFRS 16 applies to owneroccupied property held by a lessee as a right-of-use asset. [IAS 40.7]
7
Q
Scope - Property interests held under operating leases
When IFRS 16 became effective in 2019 (see 1.1 above), the classification alternative for a property interest held under an operating lease, as described further below, is no longer available. This means that if a leased property meets the definition of investment property and the lessee elects the fair value model in IAS 40 as an accounting policy, the right-of use asset arising from the leased property is measured in accordance with the fair value model of IAS 40.
[IFRS 16.34].
A
When IFRS 16 became effective in 2019 (see 1.1 above), the classification alternative for a property interest held under an operating lease, as described further below, is no longer available. This means that if a leased property meets the definition of investment property and the lessee elects the fair value model in IAS 40 as an accounting policy, the right-of use asset arising from the leased property is measured in accordance with the fair value model of IAS 40. [IFRS 16.34].
8
Q
Scope - Land 1
Land is investment property if it is held to earn rentals or for capital appreciation or for both; or for a currently undetermined future use. This is in contrast to land that is held for sale in the ordinary course of business (typically in the shorter term) or held for the production or supply of goods and services or for administrative purposes. [IAS 40.7, 8].
A
Land is investment property if it is held to earn rentals or for capital appreciation or for both; or for a currently undetermined future use. This is in contrast to land that is held for sale in the ordinary course of business (typically in the shorter term) or held for the production or supply of goods and services or for administrative purposes. [IAS 40.7, 8].
9
Q
Scope - Land 2
If, on initial recognition, land is held for a currently undetermined future use, i.e. if an entity has not determined whether it will use the land as owner-occupied property or for sale in the ordinary course of business, it is deemed to be held for capital
appreciation and must be classified as investment property. [IAS 40.8].
A
If, on initial recognition, land is held for a currently undetermined future use, i.e. if an entity has not determined whether it will use the land as owner-occupied property or for sale in the ordinary course of business, it is deemed to be held for capital
appreciation and must be classified as investment property. [IAS 40.8].
10
Q
Scope - Property leased to others 1
Properties leased to third parties under one or more operating lease are generally investment properties, whether they are owned freehold by the reporting entity or are right-of-use assets relating to properties held by the reporting entity (or if IFRS 16 is not
yet adopted, whether they are held by the reporting entity under a leasehold interest). This will also apply if the property is currently vacant while tenants are being sought. [IAS 40.8].
A
Properties leased to third parties under one or more operating lease are generally investment properties, whether they are owned freehold by the reporting entity or are right-of-use assets relating to properties held by the reporting entity (or if IFRS 16 is not
yet adopted, whether they are held by the reporting entity under a leasehold interest). This will also apply if the property is currently vacant while tenants are being sought. [IAS 40.8].
11
Q
Scope - Property leased to others 2
Property that is leased to a third party under a finance lease is not an investment property but is accounted for under IFRS 16 or, if not yet adopted. [IAS 40.9].
A
Property that is leased to a third party under a finance lease is not an investment property but is accounted for under IFRS 16 or, if not yet adopted. [IAS 40.9].
12
Q
Scope -
Property held for own use (‘owner-occupied’) 1
As noted above, owner-occupied property, that is property held for use in the production or supply of goods or services or for administrative purposes, is specifically excluded from being treated as investment property and is subject to the provisions of IAS 16 and IFRS 16. Owner-occupied property includes:
• property that is going to be owner-occupied in the future (whether or not it has first to be redeveloped);
• property occupied by employees (whether or not they pay rent at market rates); and
• owner-occupied property awaiting disposal.
[IAS 40.9].
A
As noted above, owner-occupied property, that is property held for use in the production or supply of goods or services or for administrative purposes, is specifically excluded from being treated as investment property and is subject to the provisions of IAS 16 and IFRS 16. Owner-occupied property includes:
• property that is going to be owner-occupied in the future (whether or not it has first to be redeveloped);
• property occupied by employees (whether or not they pay rent at market rates); and
• owner-occupied property awaiting disposal.
[IAS 40.9].
13
Q
Scope -
Property held for own use (‘owner-occupied’) 2
Note that the treatment in the consolidated accounts can be different from the treatment by individual group entities.
For example, it may be the case that a property owned by one group company is held for occupation by another group company. This will be owner-occupied from the perspective of the group as a whole but can be classified as an investment property in the accounts of the individual entity that owns it, provided it meets the definition of an investment property. [IAS 40.15]
A
Note that the treatment in the consolidated accounts can be different from the treatment by individual group entities.
For example, it may be the case that a property owned by one group company is held for occupation by another group company. This will be owner-occupied from the perspective of the group as a whole but can be classified as an investment property in the accounts of the individual entity that owns it, provided it meets the definition of an investment property. [IAS 40.15]
14
Q
Scope -
Property held for own use (‘owner-occupied’) 3
This classification in the individual entity’s financial statements will apply even if the rental is not at arm’s length and the individual entity is not in a position to benefit from capital appreciation. The IASB concluded that the more significant factor is that the property
itself will generate cash flows that are largely independent from other assets held by the entity.
[IAS 40.7].
A
This classification in the individual entity’s financial statements will apply even if the rental is not at arm’s length and the individual entity is not in a position to benefit from capital appreciation. The IASB concluded that the more significant factor is that the property
itself will generate cash flows that are largely independent from other assets held by the entity.
[IAS 40.7].
15
Q
Scope - Investment property under construction
Prior to 1 January 2009, IAS 16 applied to property that was being constructed or developed for future use as investment property until construction or development was complete, at which time the property became investment property. Amendments to IAS 40 with effect from 1 January 2009 brought investment property under construction within the scope of IAS 40.
[IAS 40.8].
The fair value of investment property under construction is further discussed below
A
Prior to 1 January 2009, IAS 16 applied to property that was being constructed or developed for future use as investment property until construction or development was complete, at which time the property became investment property. Amendments to IAS 40 with effect from 1 January 2009 brought investment property under construction within the scope of IAS 40.
[IAS 40.8].
The fair value of investment property under construction is further discussed below
16
Q
Scope -
Property held or under construction for sale in the ordinary course of business 1
Property held, or being constructed, with the intention of sale in the ordinary course of business is not an investment property. This includes property acquired exclusively for sale in the near future or for development and resale (such property is accounted for as inventory under IAS 2 ). [IAS 40.9].
A
Property held, or being constructed, with the intention of sale in the ordinary course of business is not an investment property. This includes property acquired exclusively for sale in the near future or for development and resale (such property is accounted for as inventory under IAS 2 ). [IAS 40.9].
17
Q
Scope -
Property held or under construction for sale in the ordinary course of business 2
In practice, the classification between investment property and property intended for sale in the ordinary course of business is often a difficult judgement. There is only a fine line between:
- a property held for capital appreciation, and therefore classified as investment property; and
- a property intended for sale in the ordinary course of business, which would be classified as inventory. This might be the case where, for example, the owner will undertake activities to increase the property’s value prior to sale or where there is uncertainty in obtaining permits required from relevant authorities prior to commencing construction activities. In the latter case, the property, e.g. land, may continue to appreciate in value during the period where there are no development activities
A
In practice, the classification between investment property and property intended for sale in the ordinary course of business is often a difficult judgement. There is only a fine line between:
- a property held for capital appreciation, and therefore classified as investment property; and
- a property intended for sale in the ordinary course of business, which would be classified as inventory. This might be the case where, for example, the owner will undertake activities to increase the property’s value prior to sale or where there is uncertainty in obtaining permits required from relevant authorities prior to commencing construction activities. In the latter case, the property, e.g. land, may continue to appreciate in value during the period where there are no development activities
18
Q
Scope -
Property with dual uses
A property may be used partly to derive rental income and partly as owner-occupied property. For example, an office could be sub-divided by the owner with some floors being rented to tenants whilst retaining others for own use. IAS 40 states that if a property has both investment property and non-investment property uses, providing the parts of the property could be sold or leased out under a finance lease separately, they should be accounted for separately. [IAS 40.10].
A
A property may be used partly to derive rental income and partly as owner-occupied property. For example, an office could be sub-divided by the owner with some floors being rented to tenants whilst retaining others for own use. IAS 40 states that if a property has both investment property and non-investment property uses, providing the parts of the property could be sold or leased out under a finance lease separately, they should be accounted for separately. [IAS 40.10].
19
Q
Scope -
Property with the provision of ancillary services 1
If the owner supplies ancillary services to the user of the investment property, the property will not qualify as an investment property unless these services are an
insignificant component of the arrangement as a whole. For example, security and maintenance services are described by the standard as being insignificant.
[IAS 40.11].
A
If the owner supplies ancillary services to the user of the investment property, the property will not qualify as an investment property unless these services are an
insignificant component of the arrangement as a whole. For example, security and maintenance services are described by the standard as being insignificant.
[IAS 40.11].
20
Q
Scope -
Property with the provision of ancillary services 2
The crucial issue is the extent to which the owner retains significant exposure to the risks of running a business. The standard uses the example of a hotel. An ownermanaged hotel, for example, would be precluded from being an investment property as the services provided to guests are a significant component of the commercial arrangements. [IAS 40.12-13].
A
The crucial issue is the extent to which the owner retains significant exposure to the risks of running a business. The standard uses the example of a hotel. An ownermanaged hotel, for example, would be precluded from being an investment property as the services provided to guests are a significant component of the commercial arrangements. [IAS 40.12-13].
21
Q
Scope -
Property with the provision of ancillary services 3
However, the nature of the asset in question is not the key factor; rather it is the nature of the owner’s interest in the asset. If the owner’s position is, in substance, that of a passive investor, any property may be treated as investment property. If, in contrast, the owner has outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations that are being executed in the building, a property should rather be treated as owner-occupied property. [IAS 40.13].
A
However, the nature of the asset in question is not the key factor; rather it is the nature of the owner’s interest in the asset. If the owner’s position is, in substance, that of a passive investor, any property may be treated as investment property. If, in contrast, the owner has outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations that are being executed in the building, a property should rather be treated as owner-occupied property. [IAS 40.13].
22
Q
Scope - Property where rentals are determined by reference to the operations in the property 1
It may also be inappropriate to consider a property as investment property if the owner is significantly exposed to the operation of the business in the property through a linkage between the rentals charged and the performance of the business.
A
It may also be inappropriate to consider a property as investment property if the owner is significantly exposed to the operation of the business in the property through a linkage between the rentals charged and the performance of the business.
23
Q
Scope - Property where rentals are determined by reference to the operations in the property 2
A common example is the incidence of turnover- or profit-related rents in retail leases. If the turnover- or profit-related element is a very significant proportion of total rental then consideration should be given to whether the landlord is so exposed to the performance of the underlying retail business as to make classification of the property as investment property inappropriate. This will be a matter of judgement, including the consideration of any other facts and circumstances (for example, the length of the lease to the tenant).
A
A common example is the incidence of turnover- or profit-related rents in retail leases. If the turnover- or profit-related element is a very significant proportion of total rental then consideration should be given to whether the landlord is so exposed to the performance of the underlying retail business as to make classification of the property as investment property inappropriate. This will be a matter of judgement, including the consideration of any other facts and circumstances (for example, the length of the lease to the tenant).
24
Q
Scope
The following are examples of items that are not investment property:
property held for sale in the ordinary course of business or in the construction or development for such sale (IAS 2);
property being constructed or developed on behalf of third parties (IAS 11);
owner-occupied property, including property held for future use or held for future development and subsequent use as owner-occupied property;
property occupied by employees (regardless of whether the employees pay rent at market rates);
owner-occupied property awaiting disposal (IAS 16); and
property leased out to another entity in terms of a finance lease agreement.
A
The following are examples of items that are not investment property:
property held for sale in the ordinary course of business or in the construction or development for such sale (IAS 2);
property being constructed or developed on behalf of third parties (IAS 11);
owner-occupied property, including property held for future use or held for future development and subsequent use as owner-occupied property;
property occupied by employees (regardless of whether the employees pay rent at market rates);
owner-occupied property awaiting disposal (IAS 16); and
property leased out to another entity in terms of a finance lease agreement.
25
Recognition 1
An owned investment property should be recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the entity and its cost can be measured reliably. [IAS 40.16].
An owned investment property should be recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the entity and its cost can be measured reliably. [IAS 40.16].
26
Recognition 2
These recognition criteria apply for any costs incurred, whether initially or subsequently.
This means that all costs related to investment property, whether on initial recognition or thereafter (for example, to add to, or replace part of, or service a property) must meet the recognition criteria at the point at which the expenditure is incurred if they are to be capitalised. [IAS 40.17].
These recognition criteria apply for any costs incurred, whether initially or subsequently.
This means that all costs related to investment property, whether on initial recognition or thereafter (for example, to add to, or replace part of, or service a property) must meet the recognition criteria at the point at which the expenditure is incurred if they are to be capitalised. [IAS 40.17].
27
Recognition 3
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 19A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is recognised in accordance with IFRS 16.
[IAS 40.19A].
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 19A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is recognised in accordance with IFRS 16.
[IAS 40.19A].
28
Recognition -
Expenditure prior to planning permissions/zoning consents 2
Application for such permissions supports the entity’s intention as to the use of the property and may be considered as a factor in classifying the asset. However, unless an entity is considering a number of possible uses of the asset at its initial recognition, the
uncertainty in obtaining relevant permission would usually not affect the classification of the property which, as set out in 2 above, is mainly based on the entity’s intention when the property is first acquired. Subsequent to initial recognition, assets might be
reclassified into and from investment property
Application for such permissions supports the entity’s intention as to the use of the property and may be considered as a factor in classifying the asset. However, unless an entity is considering a number of possible uses of the asset at its initial recognition, the
uncertainty in obtaining relevant permission would usually not affect the classification of the property which, as set out in 2 above, is mainly based on the entity’s intention when the property is first acquired. Subsequent to initial recognition, assets might be
reclassified into and from investment property
29
Recognition -
Expenditure prior to planning permissions/zoning consents 3
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely
guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the
relevant permissions will be granted
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely
guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the
relevant permissions will be granted
30
Recognition -
Expenditure prior to planning permissions/zoning consents 3
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the relevant permissions will be granted
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the relevant permissions will be granted
31
Recognition -
Expenditure prior to planning permissions/zoning consents 4
Conversely, if during the application and approval
process of such permits it is no longer expected that necessary permits will be granted, capitalisation of pre-permission expenditure should cease and any related amounts that were previously capitalised should be written off (either under the fair value model in IAS 40 or in accordance with IAS 36 – Impairment of Assets, if the cost model is applied.
Conversely, if during the application and approval
process of such permits it is no longer expected that necessary permits will be granted, capitalisation of pre-permission expenditure should cease and any related amounts that were previously capitalised should be written off (either under the fair value model in
IAS 40 or in accordance with IAS 36 – Impairment of Assets, if the cost model is applied
32
Recognition - Repairs and maintenance 1
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
33
Recognition - Repairs and maintenance 1
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised.
[IAS 40.19].
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
34
Recognition - Repairs and maintenance 2
The inference is that by restoring the asset to its originally assessed standard of performance, the new part will meet the recognition criteria and future economic benefits will flow to the entity once the old part is replaced. The inference is also that replacement is needed for the total asset to be operative. This being the case, the new walls will therefore meet the recognition criteria and the cost will therefore be capitalised.
Other than interior walls, large parts that might have to be replaced include elements such as lifts, escalators and air conditioning equipment.
The inference is that by restoring the asset to its originally assessed standard of performance, the new part will meet the recognition criteria and future economic benefits will flow to the entity once the old part is replaced. The inference is also that replacement is needed for the total asset to be operative. This being the case, the new walls will therefore meet the recognition criteria and the cost will therefore be capitalised.
Other than interior walls, large parts that might have to be replaced include elements such as lifts, escalators and air conditioning equipment
35
Recognition
Investment property under construction should be accounted for by applying IAS 40. This implies that investment property under construction should be measured using either the cost model or the fair value model. If an entity cannot reliably determine the fair value of this investment property under construction, but expects to be able to determine the fair value reliably once construction is complete, it shall measure that property at cost until either its fair value becomes reliably determinable or construction is complete (whichever comes first).
Investment property under construction should be accounted for by applying IAS 40. This implies that investment property under construction should be measured using either the cost model or the fair value model. If an entity cannot reliably determine the fair value of this investment property under construction, but expects to be able to determine the fair value reliably once construction is complete, it shall measure that property at cost until either its fair value becomes reliably determinable or construction is complete (whichever comes first).
36
Initial Measurement - Intro
IAS 40 requires an owned investment property to be measured initially at cost, which includes transaction costs. [IAS 40.20].
If a property is purchased, cost means purchase
price and any directly attributable expenditure such as professional fees, property transfer taxes and other transaction costs. [IAS 40.21].
IAS 40 requires an owned investment property to be measured initially at cost, which includes transaction costs. [IAS 40.20].
If a property is purchased, cost means purchase
price and any directly attributable expenditure such as professional fees, property transfer taxes and other transaction costs. [IAS 40.21].
37
Initial Measurement -
Start-up costs and self-built property 1
IAS 40 specifies that start-up costs (unless necessary to bring the property into working condition) and operating losses incurred before the investment property achieves the planned occupancy level, are not to be capitalised. [IAS 40.23(a), 23(b)].
IAS 40 specifies that start-up costs (unless necessary to bring the property into working condition) and operating losses incurred before the investment property achieves the planned occupancy level, are not to be capitalised. [IAS 40.23(a), 23(b)].
38
Initial Measurement -
Start-up costs and self-built property 2
If a property is self-built by an entity, the same general principles apply as for an acquired property (see Initial Measurement above).
However, IAS 40 prohibits capitalisation of abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property. [IAS 40.23(c)].
If a property is self-built by an entity, the same general principles apply as for an acquired property (see Initial Measurement above).
However, IAS 40 prohibits capitalisation of abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property. [IAS 40.23(c)].
39
Initial Measurement - Deferred payments
If payment for a property is deferred, the cost to be recognised is the cash price equivalent (which in practice means the present value of the deferred payments due) at the recognition date. Any difference between the cash price and the total payments to
be made is recognised as interest expense over the credit period. [IAS 40.24].
If payment for a property is deferred, the cost to be recognised is the cash price equivalent (which in practice means the present value of the deferred payments due) at the recognition date. Any difference between the cash price and the total payments to
be made is recognised as interest expense over the credit period. [IAS 40.24].
40
Initial Measurement -
Initial measurement of property held under a lease 1
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 29A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is measured initially at its cost in accordance with IFRS 16. [IAS 40.29A].
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 29A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is measured initially at its cost in accordance with IFRS 16. [IAS 40.29A].
41
Initial Measurement -
Initial measurement of property held under a lease 2
If a lessee leases a property and earns rental income by leasing the property to another lessee (sublease), the resulting right-of-use asset should be accounted for as an investment property. The asset accounted for as an investment property is not the physical property,
but the right-of-use asset (the lease interest in the property). The physical property will still be accounted for as an asset in the owner’s financial statements. If the fair value model is applied, the right-of-use asset should be measured at fair value and not the underlying property.
If a lessee leases a property and earns rental income by leasing the property to another lessee (sublease), the resulting right-of-use asset should be accounted for as an investment property. The asset accounted for as an investment property is not the physical property,
but the right-of-use asset (the lease interest in the property). The physical property will still be accounted for as an asset in the owner’s financial statements. If the fair value model is applied, the right-of-use asset should be measured at fair value and not the underlying property.
42
Initial Measurement -
Initial measurement of property held under a lease 3
Example 16.3: Right-of-use asse - use asset see OneNote
Example 16.3: Right-of-use asse -use asset see OneNote
43
Initial Measurement -
Initial measurement of assets acquired in exchange transactions
The requirements of IAS 40 for investment properties acquired in exchange for nonmonetary assets, or a combination of monetary and non-monetary assets, are the same as those of IAS 16. [IAS 40.27-29]
The requirements of IAS 40 for investment properties acquired in exchange for nonmonetary assets, or a combination of monetary and non-monetary assets, are the same as those of IAS 16. [IAS 40.27-29]
44
Initial Measurement - Borrowing costs 1
IAS 23 – Borrowing Costs – generally mandates capitalisation of borrowing costs in respect of qualifying assets.
However, application of IAS 23 to borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that are measured at fair value, such as investment property, is not required because it would not affect the measurement of the investment property in the statement of financial position; it would only affect presentation of interest expense and fair value gains and losses in the income statement.
IAS 23 – Borrowing Costs – generally mandates capitalisation of borrowing costs in respect of qualifying assets.
However, application of IAS 23 to borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that are measured at fair value, such as investment property, is not required because it would not affect the measurement of the investment property in the statement of financial position; it would only affect presentation of interest expense and fair value gains and losses in the income statement.
45
Initial Measurement - Borrowing costs 2
Nevertheless, IAS 23 does not prohibit capitalisation of
eligible borrowing costs to such assets as a matter of accounting policy.
To the extent that entities choose to capitalise eligible borrowing costs in respect of such assets, in our view, the methods allowed by IAS 23 should be followed.
Nevertheless, IAS 23 does not prohibit capitalisation of
eligible borrowing costs to such assets as a matter of accounting policy.
To the extent that entities choose to capitalise eligible borrowing costs in respect of such assets, in our view, the methods allowed by IAS 23 should be followed.
46
Initial Measurement -
Income from tenanted property during development 1
An issue that can arise is whether rental and similar income generated by existing tenants in a property development may be capitalised and offset against the cost of developing that property.
IAS 16 requires that the income and related expenses of incidental operations are recognised in profit or loss and included in their respective classifications of income and expense. [IAS 16.21]. We consider that rental and similar income from existing tenants are incidental operations to the development.
An issue that can arise is whether rental and similar income generated by existing tenants in a property development may be capitalised and offset against the cost of developing that property.
IAS 16 requires that the income and related expenses of incidental operations are recognised in profit or loss and included in their respective classifications of income and expense. [IAS 16.21].
We consider that rental and similar income from existing tenants are incidental operations to the development.
47
Initial Measurement -
Income from tenanted property during development 2
In our view there should not be a measurement difference between the cost of a property development dealt with under IAS 40 and the cost of development dealt with under IAS 16. Therefore, rental and similar income generated by existing tenants in a property dealt with under IAS 40 and now intended for redevelopment should not be capitalised against the costs of the development. Rather rental and similar income should be recognised in profit or loss in accordance with the requirements of IFRS 16
In our view there should not be a measurement difference between the cost of a property development dealt with under IAS 40 and the cost of development dealt with under IAS 16. Therefore, rental and similar income generated by existing tenants in a property dealt with under IAS 40 and now intended for redevelopment should not be capitalised against the costs of the development. Rather rental and similar income should be recognised in profit or loss in accordance with the requirements of IFRS 16
48
Initial Measurement -
Payments by the vendor to the purchaser 1
On occasion, a transaction for the purchase of an investment property may include an additional element where the vendor repays an amount to the purchaser – perhaps described as representing a rental equivalent for a period of time.
The question then arises whether, in the accounts of the purchaser, this payment should be recorded as income (albeit perhaps recognised over a period of time) or as a deduction from the acquisition cost of the investment property on initial recognition.
On occasion, a transaction for the purchase of an investment property may include an additional element where the vendor repays an amount to the purchaser – perhaps described as representing a rental equivalent for a period of time.
The question then arises whether, in the accounts of the purchaser, this payment should be recorded as income (albeit perhaps recognised over a period of time) or as a deduction from the acquisition cost of the investment property on initial recognition.
49
Initial Measurement -
Payments by the vendor to the purchaser 2
In our view such amounts are an integral part of the acquisition transaction and should always be treated as a deduction from the acquisition cost of the investment property because the payment is an element of a transaction between a vendor and purchaser of the property, rather than a landlord and tenant.
In the event that the repayments by the vendor are spread over time, the present value of those payments should be deducted from the cost of the investment property and an equivalent receivable recognised against which those payments are amortised.
In our view such amounts are an integral part of the acquisition transaction and should always be treated as a deduction from the acquisition cost of the investment property because the payment is an element of a transaction between a vendor and purchaser of the property, rather than a landlord and tenant.
In the event that the repayments by the vendor are spread over time, the present value of those payments should be deducted from the cost of the investment property and an equivalent receivable recognised against which those payments are amortised
50
SUBSEQUENT MEASUREMENT - Intro 1
Once recognised, IAS 40 allows an entity to choose one of the two methods of accounting for investment property as its accounting policy :
* fair value model (see 6 below); or
* cost model (see 7 below).
An entity has to choose one model or the other, and apply it to all its investment property (unless the entity is an insurer or similar entity, in which case there are exemptions that are described briefly at 5.2 below). [IAS 40.30].
Once recognised, IAS 40 allows an entity to choose one of the two methods of accounting for investment property as its accounting policy :
* fair value model (see 6 below); or
* cost model (see 7 below).
An entity has to choose one model or the other, and apply it to all its investment property (unless the entity is an insurer or similar entity, in which case there are exemptions that are described briefly at 5.2 below). [IAS 40.30].
51
SUBSEQUENT MEASUREMENT - Intro 2
The standard does not identify a preferred alternative; although the fair value model currently seems to be the more widely adopted model among entities in the real estate sector. Switching from cost model to fair value model would probably meet the condition and therefore, you can do it whenever you’re sure that you’ll be able to determine the fair value regularly and the fair value model fits better.
The standard does not identify a preferred alternative; although the fair value model currently seems to be the more widely adopted model among entities in the real estate sector. Switching from cost model to fair value model would probably meet the condition and therefore, you can do it whenever you’re sure that you’ll be able to determine the fair value regularly and the fair value model fits better.
52
SUBSEQUENT MEASUREMENT - Intro 3
Can you actually switch from cost model to fair value model or vice versa from fair value model to cost model?
The answer is YES, but only if the change results in the financial statements providing better, more reliable information about company’s financial position, results and other events. The standard discourages changes from the fair value model to the cost model, stating
that it is highly unlikely that this will result in a more relevant presentation, which is a requirement of
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors – for any voluntary change in accounting policy. [IAS 40.31].
Can you actually switch from cost model to fair value model or vice versa from fair value model to cost model?
The answer is YES, but only if the change results in the financial statements providing better, more reliable information about company’s financial position, results and other events. The standard discourages changes from the fair value model to the cost model, stating
that it is highly unlikely that this will result in a more relevant presentation, which is a requirement of
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors – for any voluntary change in accounting policy. [IAS 40.31].
53
SUBSEQUENT MEASUREMENT - Intro 4
All entities, regardless of which measurement option is chosen, are required to determine the fair value of their investment property, because even those entities that use the cost model are required to disclose the fair value of their investment property. [IAS 40.32, 79(e)].
All entities, regardless of which measurement option is chosen, are required to determine the fair value of their investment property, because even those entities that use the cost model are required to disclose the fair value of their investment property. [IAS 40.32, 79(e)].
54
SUBSEQUENT MEASUREMENT -
Property held under an operating lease
Under IFRS 16, if a lessee applies the fair value model in IAS 40 to its investment property, the lessee will also apply that fair value model to the right-of-use assets that meet the definition of investment property in IAS 40. [IFRS 16.34].
Note also that when a lessee uses the fair value model to measure an investment property that is held as a right-of-use asset, it will measure the right-of-use asset, and not the underlying property, at fair value.
[IAS 40.40A].
See Example 16.3 Right of use asset on OneNote
Under IFRS 16, if a lessee applies the fair value model in IAS 40 to its investment property, the lessee will also apply that fair value model to the right-of-use assets that meet the definition of investment property in IAS 40. [IFRS 16.34].
Note also that when a lessee uses the fair value model to measure an investment property that is held as a right-of-use asset, it will measure the right-of-use asset, and not the underlying property, at fair value.
[IAS 40.40A].
See Example 16.3 Right of use asset on OneNote
55
The Fair Value Model 1
Under this model all investment property is measured at its fair value at the end of the reporting period (except in the cases described in 6.2 Inability to determine fair value of completed investment property and 6.3 The fair value of investment property under construction below) and a gain or loss arising from changes in the fair value in the reporting period is recognised in profit or loss for that period.
[IAS 40.33, 35]. - No depreciation
Under this model all investment property is measured at its fair value at the end of the reporting period (except in the cases described in 6.2 Inability to determine fair value of completed investment property and 6.3 The fair value of investment property under construction below) and a gain or loss arising from changes in the fair value in the reporting period is recognised in profit or loss for that period.
[IAS 40.33, 35]. - No depreciation
56
The Fair Value Model 2
IFRS 13 defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’ [IFRS 13.9, IAS 40.5].
IFRS 13 defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’ [IFRS 13.9, IAS 40.5].
57
The Fair Value Model 3
Many entities use an external valuer to estimate fair value based on the RICS and/or IVSC Valuation Standards. Indeed, the use of an independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued is encouraged by IAS 40, albeit not required.
[IAS 40.32].
Many entities use an external valuer to estimate fair value based on the RICS and/or IVSC Valuation Standards. Indeed, the use of an independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued is encouraged by IAS 40, albeit not required.
[IAS 40.32].
58
The Fair Value Model 4
The price in the principal (or most advantageous) market used to measure fair value shall not be adjusted for transaction costs. This is because transaction costs are not a characteristic of an asset or a liability; rather, they are specific to a transaction and will differ depending on how an entity enters into a transaction for the asset or liability.
[IFRS 13.25].
The price in the principal (or most advantageous) market used to measure fair value shall not be adjusted for transaction costs. This is because transaction costs are not a characteristic of an asset or a liability; rather, they are specific to a transaction and will differ depending on how an entity enters into a transaction for the asset or liability.
[IFRS 13.25].
59
The Fair Value Model 5
When estimating the fair value of the property in accordance with IFRS 13, the objective is to estimate the price that would be received to sell an investment property in an orderly transaction between market participants at the measurement date under current
market conditions. [IFRS 13.2].
This objective applies regardless of the techniques and inputs used to measure fair value.
When estimating the fair value of the property in accordance with IFRS 13, the objective is to estimate the price that would be received to sell an investment property in an orderly transaction between market participants at the measurement date under current
market conditions. [IFRS 13.2].
This objective applies regardless of the techniques and inputs used to measure fair value.
60
The Fair Value Model 6
IAS 40 has certain requirements in addition to those in IFRS 13. In particular, IAS 40 requires that the fair value reflects, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions. [IAS 40.40]. For example, in a transaction to sell an investment property, it is likely that market participants would consider the existing lease agreements in place.
IAS 40 has certain requirements in addition to those in IFRS 13. In particular, IAS 40 requires that the fair value reflects, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions. [IAS 40.40]. For example, in a transaction to sell an investment property, it is likely that market participants would consider the existing lease agreements in place.
61
The Fair Value Model 7
This is consistent with the general requirement in IFRS 13 that an entity should measure the fair value using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
[IFRS 13.22].
This is consistent with the general requirement in IFRS 13 that an entity should measure the fair value using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
[IFRS 13.22].
62
The Fair Value Model 8
In measuring fair value, assets or liabilities that are recognised as separate assets or liabilities should not be reflected in the fair value measurement, as this may result in double accounting, for example:
equipment such as lifts or air-conditioning is often an integral part of a building and is generally included in the fair value of the investment property, rather than recognised separately as property, plant and equipment;
if an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture, because the rental income relates to the furnished office – therefore the entity does not recognise the fair value of the furniture as a separate
asset;
the fair value of investment property excludes prepaid or accrued operating lease income, because the entity recognises it as a separate liability or asset; and
the fair value of investment property held by a lessee as a right-to-use asset reflects expected cash flows (including variable lease payments expected to be payable). It will be necessary to add back any recognised lease liability to arrive at the fair value of the investment property.
In measuring fair value, assets or liabilities that are recognised as separate assets or liabilities should not be reflected in the fair value measurement, as this may result in double accounting, for example:
equipment such as lifts or air-conditioning is often an integral part of a building and is generally included in the fair value of the investment property, rather than recognised separately as property, plant and equipment;
if an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture, because the rental income relates to the furnished office – therefore the entity does not recognise the fair value of the furniture as a separate
asset;
the fair value of investment property excludes prepaid or accrued operating lease income, because the entity recognises it as a separate liability or asset; and
the fair value of investment property held by a lessee as a right-to-use asset reflects expected cash flows (including variable lease payments expected to be payable). It will be necessary to add back any recognised lease liability to arrive at the fair value of the investment property.
63
The Fair Value Model -
Inability to determine fair value of completed investment property 1
There is a rebuttable presumption that, if an entity acquires or constructs property that will qualify as investment property under this standard, it will be able to assess the fair value reliably on an ongoing basis. In rare circumstances, however, when an entity acquires for the first time an investment property (or when an existing property first qualifies to be classified as investment property when there has been change of use), there may be clear evidence that the fair value of the investment property cannot reliably be determined on a continuous basis. This arises when, and only when, the market for comparable properties is inactive and alternative reliable measurement of fair value is
not available
There is a rebuttable presumption that, if an entity acquires or constructs property that will qualify as investment property under this standard, it will be able to assess the fair value reliably on an ongoing basis. In rare circumstances, however, when an entity acquires for the first time an investment property (or when an existing property first qualifies to be classified as investment property when there has been change of use), there may be clear evidence that the fair value of the investment property cannot reliably be determined on a continuous basis. This arises when, and only when, the market for comparable properties is inactive and alternative reliable measurement of fair value is
not available
64
The Fair Value Model -
Inability to determine fair value of completed investment property 2
In such exceptional cases, the property should be
measured using the cost model in IAS 16 for owned investment property, or cost model in accordance with IFRS 16 for investment property held by a lessee as a right-of-use asset, until its disposal and assumed to have a nil residual value. [IAS 40.53].
In such exceptional cases, the property should be
measured using the cost model in IAS 16 for owned investment property, or cost model in accordance with IFRS 16 for investment property held by a lessee as a right-of-use asset, until its disposal and assumed to have a nil residual value. [IAS 40.53].
65
The Fair Value Model -
Inability to determine fair value of completed investment property 3
This means that an owned investment property has to be carried at cost and the building and its component parts depreciated over their useful lives. In these
circumstances, IAS 16’s revaluation model, under which assets may be revalued to fair value, is specifically ruled out. If this exceptional situation occurs, the cost model in IAS 16 or in IFRS 16 should continue to be applied until disposal of such property. Although an entity measures an individual property at cost for this reason, all other investment property must continue to be carried at fair value. [IAS 40.54].
This means that an owned investment property has to be carried at cost and the building and its component parts depreciated over their useful lives. In these
circumstances, IAS 16’s revaluation model, under which assets may be revalued to fair value, is specifically ruled out. If this exceptional situation occurs, the cost model in IAS 16 or in IFRS 16 should continue to be applied until disposal of such property. Although an entity measures an individual property at cost for this reason, all other investment property must continue to be carried at fair value. [IAS 40.54].
66
The Fair Value Model -
Inability to determine fair value of completed investment property 4
The above exception is not permitted for investment property that has been previously measured using the fair value model. Once a property is initially recognised at its fair value, it must always be so recognised until disposed of or reclassified for owneroccupation or development for subsequent sale in the ordinary course of the business, even if comparable market transactions become less frequent or market prices become less easily available. [IAS 40.55].
The above exception is not permitted for investment property that has been previously measured using the fair value model. Once a property is initially recognised at its fair value, it must always be so recognised until disposed of or reclassified for owneroccupation or development for subsequent sale in the ordinary course of the business, even if comparable market transactions become less frequent or market prices become less easily available. [IAS 40.55].
67
The Fair Value Model -
Inability to determine fair value of completed investment property 5
See example on OneNote:
Can a company opt for the fair value model for an investment property under construction, while all other completed investment properties are valued using the acquisition cost model?
See example on OneNote:
Can a company opt for the fair value model for an investment property under construction, while all other completed investment properties are valued using the acquisition cost model?
68
The Fair Value Model - The fair value of investment property under construction 1
Entities who wish to measure their completed investment property at fair value will also need to measure their investment property under construction at fair value (subject to fair value being reliably determinable). [IAS 40.33, 53].
Entities who wish to measure their completed investment property at fair value will also need to measure their investment property under construction at fair value (subject to fair value being reliably determinable).
[IAS 40.33, 53].
69
The Fair Value Model - The fair value of investment property under construction 2
Determining the fair value of investment property under construction will often be more judgemental than for completed property because:
• there are generally no observable transactions for investment property under construction. Where such assets are transacted, this is typically when they are in
the very early stages of development or when they are nearly complete and substantially let; and
• additional assumptions must be made about the risks and costs of any incomplete construction
Determining the fair value of investment property under construction will often be more judgemental than for completed property because:
• there are generally no observable transactions for investment property under construction. Where such assets are transacted, this is typically when they are in
the very early stages of development or when they are nearly complete and substantially let; and
• additional assumptions must be made about the risks and costs of any incomplete construction
70
The Fair Value Model - The fair value of investment property under construction 3a
IAS 40 also sets out the following:
• Once an entity becomes able to measure reliably the fair value of an investment property under construction that it has previously measured at cost, it should measure that property at its fair value. [IAS 40.53A].
• Once an entity becomes able to measure reliably the fair value of an investment property under construction that it has previously measured at cost, it should measure that property at its fair value. [IAS 40.53A].
71
The Fair Value Model - The fair value of investment property under construction 3b
• Once construction of such property is complete, it is presumed that fair value can be measured reliably. If this is not the case, and this will be only in exceptional situations, the property should be accounted for using the cost model in accordance with IAS 16 for owned investment property or cost model in accordance with
IFRS 16 for investment property held by a lessee as a right-of-use asset, together with the other requirements discussed in 6.2 above, i.e. use the cost model until disposal of the property (even if subsequently its fair value becomes reliably determinable) and assume that it has a nil residual value. [IAS 40.53A].
• Once construction of such property is complete, it is presumed that fair value can be measured reliably. If this is not the case, and this will be only in exceptional situations, the property should be accounted for using the cost model in accordance with IAS 16 for owned investment property or cost model in accordance with
IFRS 16 for investment property held by a lessee as a right-of-use asset, together with the other requirements discussed in 6.2 above, i.e. use the cost model until disposal of the property (even if subsequently its fair value becomes reliably determinable) and assume that it has a nil residual value. [IAS 40.53A].
72
The Fair Value Model - The fair value of investment property under construction 3c
• The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition. Therefore, an entity that has measured an item of investment property under construction at fair value may not subsequently conclude that the fair value of the completed investment property cannot be
measured reliably. [IAS 40.53B].
• The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition. Therefore, an entity that has measured an item of investment property under construction at fair value may not subsequently conclude that the fair value of the completed investment property cannot be measured reliably. [IAS 40.53B].
73
The Cost Model 1
Except in the cases described in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations below, the cost model requires that investment
property held by a lessee as a right-of-use asset be measured after initial recognition in accordance with IFRS 16 and under the cost model set out in IAS 16 for owned investment property. [IAS 40.56].
If investment property is classified as held for sale, it is measured in terms of IFRS 5, and is outside the scope of this chapter.
Except in the cases described in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations below, the cost model requires that investment
property held by a lessee as a right-of-use asset be measured after initial recognition in accordance with IFRS 16 and under the cost model set out in IAS 16 for owned investment property. [IAS 40.56].
If investment property is classified as held for sale, it is measured in terms of IFRS 5, and is outside the scope of this chapter.
74
The Cost Model 2
Under IAS 16, this means that the owned asset must be recognised at cost, depreciated systematically over its useful life and impaired when appropriate. [IAS 16.30]. The residual value and useful life of each owned investment property must be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the changes must be accounted for as a change in accounting estimate in accordance with IAS 8. [IAS 16.51].
If an entity adopts the cost model, the fair value of its investment property must be disclosed
Under IAS 16, this means that the owned asset must be recognised at cost, depreciated systematically over its useful life and impaired when appropriate. [IAS 16.30]. The residual value and useful life of each owned investment property must be reviewed at least at
each financial year-end and, if expectations differ from previous estimates, the changes must be accounted for as a change in accounting estimate in accordance with IAS 8. [IAS 16.51].
If an entity adopts the cost model, the fair value of its investment property must be disclosed
75
The Cost Model 3
Investment property measured at cost is subject to the requirements of IAS 36 in respect of impairment. IAS 36 requires a recoverable amount to be determined as the higher of (i) value in use and (ii) fair value less costs of disposal.
[IAS 36.18].
Investment property measured at cost is subject to the requirements of IAS 36 in respect of impairment. IAS 36 requires a recoverable amount to be determined as the higher of (i) value in use and (ii) fair value less costs of disposal.
[IAS 36.18].
76
IFRS 5 and Investment Property 1
Investment property measured using the cost model (under IAS 16 or IFRS 16) which meets the criteria to be classified as held for sale, or is included within a
disposal group classified as held for sale, is measured in accordance with IFRS 5 – Non current Assets Held for Sale and Discontinued Operations. [IAS 40.56].
This means that such property will be held at the lower of carrying amount and fair value less costs to sell, and depreciation of the asset will cease. [IFRS 5.15, 25].
Investment property measured using the cost model (under IAS 16 or IFRS 16) which meets the criteria to be classified as held for sale, or is included within a
disposal group classified as held for sale, is measured in accordance with IFRS 5 – Non current Assets Held for Sale and Discontinued Operations. [IAS 40.56].
This means that such property will be held at the lower of carrying amount and fair value less costs to sell, and depreciation of the asset will cease. [IFRS 5.15, 25].
77
IFRS 5 and Investment Property 2
As set out in Chapter 4 IFRS 5 at 2.2.1, investment property measured at fair value is not subject to the measurement requirements of IFRS 5. However, such property is subject to the presentation requirements of that standard. Consequently, investment property that
meets the definition of held for sale is required to be presented separately from other assets in the statement of financial position. This does not necessarily mean that such property must be presented within current assets
(see Chapter 4 IFRS 5 at 2.2.4).
As set out in Chapter 4 IFRS 5 at 2.2.1, investment property measured at fair value is not subject to the measurement requirements of IFRS 5. However, such property is subject to the presentation requirements of that standard. Consequently, investment property that
meets the definition of held for sale is required to be presented separately from other assets in the statement of financial position. This does not necessarily mean that such property must be presented within current assets
(see Chapter 4 IFRS 5 at 2.2.4).
78
Transfer to or from Investment Property 1
Transfers to or from investment property should be made only when there is demonstrated “change in use” as contemplated by the standard. IAS 40 presents a non-exhaustive list of examples, where a change in use takes place when there is a transfer:
* From investment property to owner-occupied property, when owner-occupation commences;
* From investment property to inventories, on commencement of development with a view to sale;
* From an owner-occupied property to investment property, when owner-occupation ends; or
* From inventories to investment property, when an operating lease to a third party commences.
Transfers to or from investment property should be made only when there is demonstrated “change in use” as contemplated by the standard. IAS 40 presents a non-exhaustive list of examples, where a change in use takes place when there is a transfer:
* From investment property to owner-occupied property, when owner-occupation commences;
* From investment property to inventories, on commencement of development with a view to sale;
* From an owner-occupied property to investment property, when owner-occupation ends; or
* From inventories to investment property, when an operating lease to a third party commences.
79
Transfer to or from Investment Property 2
A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.
In the case of an entity that employs the cost model, transfers between investment
property, owner-occupied property and inventories do not change the carrying amount of the property transferred and thus do not change the cost of that property for measurement or disclosure purposes.
When the investment property is carried under the fair value model, vastly different results follow as far as recognition and measurement is concerned. These are explained below
A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.
In the case of an entity that employs the cost model, transfers between investment
property, owner-occupied property and inventories do not change the carrying amount of the property transferred and thus do not change the cost of that property for measurement or disclosure purposes.
When the investment property is carried under the fair value model, vastly different results follow as far as recognition and measurement is concerned. These are explained below
80
```
Transfer to or from Investment Property -
Transfers from (or to) investment property to (or from) owner-occupied property (in the case of investment property carried under the fair value model) 1
```
In some instances, property that at first is appropriately classified as investment property under IAS 40 may later become property, plant and equipment as
defined under IAS 16. For example, a building is obtained and leased to unrelated parties, but at a later date the entity expands its own operations to the extent that it now chooses to utilise the building formerly held as a passive investment for its
own purposes, such as for the corporate executive offices.
In some instances, property that at first is appropriately classified as investment property under IAS 40 may later become property, plant and equipment as
defined under IAS 16. For example, a building is obtained and leased to unrelated parties, but at a later date the entity expands its own operations to the extent that it now chooses to utilise the building formerly held as a passive investment for its
own purposes, such as for the corporate executive offices.
81
```
Transfer to or from Investment Property -
Transfers from (or to) investment property to (or from) owner-occupied property (in the case of investment property carried under the fair value model). 2
```
The amount reflected in the accounting records as the fair value of the property as of the date of change in
status would become the cost basis for subsequent accounting purposes. Previously recognised changes in value, if any, would not be reversed.
The amount reflected in the accounting records as the fair value of the property as of the date of change in
status would become the cost basis for subsequent accounting purposes. Previously recognised changes in value, if any, would not be reversed.
82
```
Transfer to or from Investment Property -
Transfers from (or to) investment property to (or from) owner-occupied property (in the case of investment property carried under the fair value model). 3
```
Similarly, if property first classified as owner-occupied property and treated as property, plant and equipment under the benchmark treatment of IAS 16 or treated
as right-of-use asset under IFRS 16 is later redeployed as investment property, it is to be measured at fair value at the date of the change in its usage.
If the value is lower than the carrying amount (i.e., if there is a previously unrecognised decline in its fair
value) then this will be reflected in profit or loss in the period of redeployment as an investment property.
On the other hand, if there has been an unrecognised increase in value, the accounting will depend on whether this is a reversal of a previously recognised impairment.
Similarly, if property first classified as owner-occupied property and treated as property, plant and equipment under the benchmark treatment of IAS 16 or treated
as right-of-use asset under IFRS 16 is later redeployed as investment property, it is to be measured at fair value at the date of the change in its usage.
If the value is lower than the carrying amount (i.e., if there is a previously unrecognised decline in its fair
value) then this will be reflected in profit or loss in the period of redeployment as an investment property.
On the other hand, if there has been an unrecognised increase in value, the accounting will depend on whether this is a reversal of a previously recognised impairment.
83
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Transfer to or from Investment Property -
Transfers from (or to) investment property to (or from) owner-occupied property (in the case of investment property carried under the fair value model) 4
```
If the increase is a reversal of a decline in value, the increase should be recognised in profit or loss; the amount so reported, however, should not exceed the
amount needed to restore the carrying amount to what it would have been, net of depreciation, had the earlier impairment not occurred. If, on the other hand, there
was no previously recognised impairment which the current value increase is effectively reversing (or, to the extent that the current increase exceeds the earlier decline), then the increase should be recognised in other comprehensive income. If the investment property is later disposed of, any surplus in equity should be transferred to retained earnings without being recognised through profit or loss.
If the increase is a reversal of a decline in value, the increase should be recognised in profit or loss; the amount so reported, however, should not exceed the
amount needed to restore the carrying amount to what it would have been, net of depreciation, had the earlier impairment not occurred. If, on the other hand, there
was no previously recognised impairment which the current value increase is effectively reversing (or, to the extent that the current increase exceeds the earlier decline), then the increase should be recognised in other comprehensive income. If the investment property is later disposed of, any surplus in equity should be transferred to retained earnings without being recognised through profit or loss.
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Transfer to or from Investment Property -
Transfers from inventories to investment property (in the case of investment property carried under the fair value model) 1
It may also happen that property originally classified as inventories, originally held for sale in the normal course of the business, is later redeployed as investment
property. When reclassified, the initial carrying amount should be fair value as of date of change. Any difference between the fair value and the carrying amount of the property at the date of transfer would be reported in profit or loss. This is consistent with the treatment of sales of inventories.
It may also happen that property originally classified as inventories, originally held for sale in the normal course of the business, is later redeployed as investment
property. When reclassified, the initial carrying amount should be fair value as of date of change. Any difference between the fair value and the carrying amount of the
property at the date of transfer would be reported in profit or loss. This is consistent with the treatment of sales of inventories.
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Transfer to or from Investment Property -
Transfers from inventories to investment property (in the case of investment property carried under the fair value model) 2
Example: Can a property under construction classified as inventory be reclassified as an investment property if the disposal plans no longer exist?
No, a property under construction that has been classified as inventory to date is not to be reclassified solely on the basis of its intended use being changed. This requires, supporting evidence for example, an operating lease agreement to be commenced
[IAS 40.57(d)].
Example: Can a property under construction classified as inventory be reclassified as an investment property if the disposal plans no longer exist?
No, a property under construction that has been classified as inventory to date is not to be reclassified solely on the basis of its intended use being changed. This requires, supporting evidence for example, an operating lease agreement to be commenced
[IAS 40.57(d)].
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Transfer to or from Investment Property -
Transfers from investment property to inventories 1
IAS 40 requires an investment property to be transferred to inventories only when there is a change of use evidenced by commencement of development with a view to sale.
When an investment property carried at fair value is transferred to inventories, the property’s deemed cost for subsequent accounting in accordance with IAS 2, Inventories is its fair value at the date of change in use.
IAS 40 requires an investment property to be transferred to inventories only when there is a change of use evidenced by commencement of development with a view to sale.
When an investment property carried at fair value is transferred to inventories, the property’s deemed cost for subsequent accounting in accordance with IAS 2, Inventories is its fair value at the date of change in use.
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Transfer to or from Investment Property -
Transfers from investment property to inventories 2
When the entity determines that property held as investment property is to be sold, that property should be classified as a non-current asset held for sale in accordance with IFRS 5. It should not be derecognised (eliminated from the statement of financial position) or transferred to inventories. The treatment of non-current assets held for sale is discussed in further detail in Chapter 13. However, in the case of investment property held for sale, these continue to be measured at fair value in accordance with IAS 40 up to the point of sale, unlike, for example, property, plant
and equipment, which is measured at the lower of carrying amount or fair value less costs to sell while held for sale.
When the entity determines that property held as investment property is to be sold, that property should be classified as a non-current asset held for sale in accordance with IFRS 5. It should not be derecognised (eliminated from the statement of financial position) or transferred to inventories. The treatment of non-current
assets held for sale is discussed in further detail in Chapter 13. However, in the case of investment property held for sale, these continue to be measured at fair value in accordance with IAS 40 up to the point of sale, unlike, for example, property, plant
and equipment, which is measured at the lower of carrying amount or fair value less costs to sell while held for sale.
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Transfer to or from Investment Property -
Transfers from investment property to inventories 3
Example: Can a property that has previously been classified as an investment property be reclassified as inventory if it is renovated to create disposal through sale?
Yes, if the renovation is a development that significantly increases the value of the property. This may be the case when a significantly higher rental standard is achieved through renovation or when the lettable area is significantly increased. However, if the renovation only serves to maintain the property at its current level, then in accordance with IAS 40.57(b), there is no development with the aim of sale.
Example: Can a property that has previously been classified as an investment property be reclassified as inventory if it is renovated to create disposal through sale?
Yes, if the renovation is a development that significantly increases the value of the property. This may be the case when a significantly higher rental standard
is achieved through renovation or when the lettable area is significantly increased. However, if the renovation only serves to maintain the property at its current level, then in accordance with IAS 40.57(b), there is no development with the aim of sale.
89
Disposal and Retirement of Investment Property 1
IAS 40 requires that an investment property should be removed from the statement of financial position (‘derecognised’) on disposal or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. [IAS 40.66].
IAS 40 requires that an investment property should be removed from the statement of financial position (‘derecognised’) on disposal or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. [IAS 40.66].
90
Disposal and Retirement of Investment Property 2
A disposal of an investment property may be achieved by:
* its sale;
* when it becomes the subject of a finance lease (the owner becoming the lessor); or
* when it becomes the subject of a sale and leaseback deal resulting in an operating lease (the original owner becoming the lessee). [IAS 40.67].
A disposal of an investment property may be achieved by:
* its sale;
* when it becomes the subject of a finance lease (the owner becoming the lessor); or
* when it becomes the subject of a sale and leaseback deal resulting in an operating lease (the original owner becoming the lessee). [IAS 40.67].
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Disposal and Retirement of Investment Property 3
IFRS 16 applies if a property is disposed of by the owner becoming a lessor in a finance lease, or if a property is the subject of a sale and leaseback
transaction
IFRS 16 applies if a property is disposed of by the owner becoming a lessor in a finance lease, or if a property is the subject of a sale and leaseback
transaction
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Disposal and Retirement of Investment Property 4
If disposal of investment property is achieved by sale, the determination of the timing of recognition of any gain or loss should be in accordance with IFRS 15.
Consequently, the date of disposal for investment property that is sold is the date the recipient obtains control of the investment property in accordance with the requirements for determining when a performance obligation is satisfied in IFRS 15. [IAS 40.67]
If disposal of investment property is achieved by sale, the determination of the timing of recognition of any gain or loss should be in accordance with IFRS 15.
Consequently, the date of disposal for investment property that is sold is the date the recipient obtains control of the investment property in accordance with the requirements for determining when a performance obligation is satisfied in IFRS 15. [IAS 40.67]
93
Disposal and Retirement of Investment Property 5
IFRS 15 requires revenue (and a gain or loss on disposal of a non-current asset not in the ordinary course of business) to be recognised when a performance obligation is satisfied, which will be when control of the asset is transferred to the customer. Control may be transferred at a point in time or over time. [IFRS 15.31, 32].
IFRS 15 requires revenue (and a gain or loss on disposal of a non-current asset not in the ordinary course of business) to be recognised when a performance obligation is satisfied, which will be when control of the asset is transferred to the customer. Control may be transferred at a point in time or over time.
[IFRS 15.31, 32].
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Disposal and Retirement of Investment Property 6
Accordingly, entities that dispose of an investment property through sale should recognise a gain or loss on disposal when control of the property transfers, which may be at a point in time. In many cases, control will transfer when the buyer obtains legal title and physical possession of the asset.
However, this may occur prior to legal settlement if it can be demonstrated that control has passed to the buyer before that date.
Accordingly, entities that dispose of an investment property through sale should recognise a gain or loss on disposal when control of the property transfers, which may be at a point in time. In many cases, control will transfer when the buyer obtains legal title and physical possession of the asset. However, this may occur prior to legal settlement if it can be demonstrated that control has passed to the buyer before that date.
95
Disposal and Retirement of Investment Property 7
Gains and losses on retirement or disposal of investment property are calculated based on the difference between the net disposal proceeds (after deducting direct costs of disposal) and the carrying amount of the asset. [IAS 40.69].
Gains and losses on retirement or disposal of investment property are calculated based on the difference between the net disposal proceeds (after deducting direct costs of disposal) and the carrying amount of the asset. [IAS 40.69].
96
Disposal and Retirement of Investment Property 8
IAS 40 does not give guidance on how to determine the carrying amount of the asset. Possible alternatives would include the use of (i) the carrying amount in the financial statements of the last full period of account, or (ii) the carrying amount in the latest interim financial statements, or (iii) the updated carrying amount at the date of disposal.
IAS 40 does not give guidance on how to determine the carrying amount of the asset. Possible alternatives would include the use of (i) the carrying amount in the financial statements of the last full period of account, or (ii) the carrying amount in the latest interim financial statements, or (iii) the updated carrying amount at the date of disposal.
97
Disposal and Retirement of Investment Property 9
The amount of consideration to be included in the gain or loss arising from the derecognition of an investment property is determined in accordance with the
requirements for determining the transaction price in IFRS 15. [IAS 40.70].
Under IFRS 15, an entity is required to consider the terms of the contract and its customary business practices in determining the transaction price.
The amount of consideration to be included in the gain or loss arising from the derecognition of an investment property is determined in accordance with the
requirements for determining the transaction price in IFRS 15. [IAS 40.70].
Under IFRS 15, an entity is required to consider the terms of the contract and its customary business practices in determining the transaction price
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Disposal and Retirement of Investment Property 10
Transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for transferring the property to a buyer, excluding amounts collected on behalf of third parties (e.g. sales taxes). The consideration in a contract may include fixed amounts, variable amounts, or both.
[IFRS 15.47]
In many cases, the transaction price may be readily determined if the entity receives payment when it transfers the property and the price is fixed
Transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for transferring the property to a buyer, excluding amounts collected on behalf of third parties (e.g. sales taxes). The consideration in a contract may include fixed amounts, variable amounts, or both.
[IFRS 15.47]
In many cases, the transaction price may be readily determined if the entity receives payment when it transfers the property and the price is fixed
99
Disposal and Retirement of Investment Property -
Sale prior to completion of construction
It should be noted that property that is subject to sale prior to completion of construction, if not previously classified as investment property, is likely to be property intended for sale in the ordinary course of business and is therefore not likely to be investment property. Accordingly, the requirements in IFRS 15 should be followed.
If, however, the property subject to sale prior to completion of construction is previously classified as investment property, guidance in IAS 40 would be followed – see discussions in above (Disposal and Retirement of Investment Property 1-10) . Any consequent construction services to be
provided by the seller would likely be subjected to the requirements of IFRS 15.
It should be noted that property that is subject to sale prior to completion of construction, if not previously classified as investment property, is likely to be property intended for sale in the ordinary course of business and is therefore not likely to be investment property. Accordingly, the requirements in IFRS 15 should be followed.
If, however, the property subject to sale prior to completion of construction is previously classified as investment property, guidance in IAS 40 would be followed – see discussions in above (Disposal and Retirement of Investment Property 1-10) . Any consequent construction services to be
provided by the seller would likely be subjected to the requirements of IFRS 15.
100
Disposal and Retirement of Investment Property - Replacement of parts of investment property 1
When an entity that applies the fair value model wishes to capitalise a replacement part, the question arises of how to deal with the cost of the new part and the carrying value of the original. The basic principle in IAS 40 is that the entity derecognises the carrying value of the replaced part. However, the problem frequently encountered is that even if the cost of the old part is known, its carrying value – at fair value – is usually by no means clear. It is possible also that the fair value may already reflect the loss in value of the part to be replaced, because the valuation reflected the fact that an acquirer would reduce the price accordingly. [IAS 40.68].
When an entity that applies the fair value model wishes to capitalise a replacement part, the question arises of how to deal with the cost of the new part and the carrying value of the original. The basic principle in IAS 40 is that the entity derecognises the carrying value of the replaced part. However, the problem frequently encountered is that even if the cost of the old part is known, its carrying value – at fair value – is usually by no means clear. It is possible also that the fair value may already reflect the loss in value of the part to be replaced, because the valuation reflected the fact that an acquirer would reduce the price accordingly. [IAS 40.68].
101
Disposal and Retirement of Investment Property - Replacement of parts of investment property 2
As all fair value changes are taken to profit or loss, the standard concludes that it is not necessary to identify separately the elements that relate to replacements from other fair value movements. Therefore, if it is not practical to identify the amount by which fair value should be reduced for the part replaced, the cost of the
replacement is added to the carrying amount of the asset and the fair value of the investment property as a whole is reassessed. The standard notes that this is the
treatment that would be applied to additions that did not involve replacing any existing part of the property. [IAS 40.68].
As all fair value changes are taken to profit or loss, the standard concludes that it is not necessary to identify separately the elements that relate to replacements from other fair value movements. Therefore, if it is not practical to identify the amount by which fair value should be reduced for the part replaced, the cost of the
replacement is added to the carrying amount of the asset and the fair value of the investment property as a whole is reassessed. The standard notes that this is the
treatment that would be applied to additions that did not involve replacing any existing part of the property. [IAS 40.68].
102
Disposal and Retirement of Investment Property - Replacement of parts of investment property 3
If the investment property is carried under the cost model, then the entity should derecognise the carrying amount of the original part. A replaced part may not have been depreciated separately, in which case, if it is not practicable to determine the carrying amount of the replaced part, the standard allows the entity to use the cost of the replacement as an indication of an appropriate carrying value. This does not mean that
the entity has to apply depreciated replacement cost, rather that it can use the cost of the replacement as an indication of the original cost of the replaced part in order to reconstruct a suitable carrying amount for the replaced part. [IAS 40.68].
If the investment property is carried under the cost model, then the entity should derecognise the carrying amount of the original part. A replaced part may not have been depreciated separately, in which case, if it is not practicable to determine the carrying amount of the replaced part, the standard allows the entity to use the cost of the replacement as an indication of an appropriate carrying value. This does not mean that
the entity has to apply depreciated replacement cost, rather that it can use the cost of the replacement as an indication of the original cost of the replaced part in order to reconstruct a suitable carrying amount for the replaced part. [IAS 40.68].
103
Disposal and Retirement of Investment Property -
Compensation from third parties 1
IAS 40 applies the same rules as IAS 16 to the treatment of compensation from third parties if property has been impaired, lost or given up. It stresses that impairments or losses of investment property, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events that have to be accounted for separately. [IAS 40.73].
IAS 40 applies the same rules as IAS 16 to the treatment of compensation from third parties if property has been impaired, lost or given up. It stresses
that impairments or losses of investment property, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events that have to be accounted for
separately. [IAS 40.73].
104
Disposal and Retirement of Investment Property -
Compensation from third parties 2
Impairment of investment property will be recorded automatically if the fair value model is used; but if the property is accounted for using the cost model, it is to be calculated in accordance with IAS 36. If the entity no longer owns the asset, for example because it has been destroyed or subject to a compulsory purchase
order, it will be derecognised. Compensation from third parties (for example, from an insurance company) for property that was impaired, lost or given up is recognised in profit or loss when it becomes receivable. The cost of any replacement asset is accounted for wholly on its own merits according to the recognition rules covered above. [IAS 40.72, 73].
Impairment of investment property will be recorded automatically if the fair value model is used; but if the property is accounted for using the cost model, it is to be calculated in accordance with IAS 36. If the entity no longer owns the asset, for example because it has been destroyed or subject to a compulsory purchase
order, it will be derecognised. Compensation from third parties (for example, from an insurance company) for property that was impaired, lost or given up is recognised in profit or loss when it becomes receivable. The cost of any replacement asset is accounted for wholly on its own merits according to the recognition rules covered above. [IAS 40.72, 73].
105
Disclosures applicable to all investment properties (general disclosures) 1
• There is a requirement to disclose whether the entity applies the fair value or the
cost model.
• When classification is difficult, an entity that holds an investment property will need to disclose the criteria used to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business.
• There is a requirement to disclose whether the entity applies the fair value or the
cost model.
• When classification is difficult, an entity that holds an investment property will need to disclose the criteria used to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business.
106
Disclosures applicable to all investment properties (general disclosures) 2
• The methods and any significant assumptions that were used in ascertaining the fair values of the investment properties are to be disclosed as well. Such disclosure also includes a statement about whether the determination of fair value was supported by market evidence or relied heavily on other factors (which the entity needs to disclose as well) due to the nature of the property and the absence of comparable market data
• The methods and any significant assumptions that were used in ascertaining the fair values of the investment properties are to be disclosed as well. Such disclosure also includes a statement about whether the determination of fair value was supported by market evidence or relied heavily on other factors (which the entity needs to disclose as well) due to the nature of the property and the absence of comparable market data
107
Disclosures applicable to all investment properties (general disclosures) 3
• If investment property has been revalued by an independent appraiser, having recognised and relevant qualifications, and who has recent experience with properties having similar characteristics of location and type, the extent to which the fair value of investment property (either used in case the fair value model is used or disclosed in case the cost model is used) is based on valuation by such a qualified independent valuation specialist. If there is no such valuation, that fact should be disclosed as well.
• If investment property has been revalued by an independent appraiser, having recognised and relevant qualifications, and who has recent experience with properties having similar characteristics of location and type, the extent to which the fair value of investment property (either used in case the fair value model is used or disclosed in case the cost model is used) is based on valuation by such a qualified independent valuation specialist. If there is no such valuation, that fact should be disclosed as well.
108
Disclosures applicable to all investment properties (general disclosures) 4
• The following should be disclosed in the statement of comprehensive income:
- The amount of rental income derived from investment property.
- Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period.
- Direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.
- The cumulative change in fair value recognised in profit and loss on a sale of investment property from a pool of assets in which the cost model is used into
a pool in which the fair value model is used.
- The existence and the amount of any restrictions which may potentially affect the realisability of investment property or the remittance of income and proceeds from disposal to be received.
- Material contractual obligations to purchase or build investment property or to make repairs, maintenance or improvements thereto.
• The following should be disclosed in the statement of comprehensive income:
- The amount of rental income derived from investment property.
- Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period.
- Direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.
- The cumulative change in fair value recognised in profit and loss on a sale of investment property from a pool of assets in which the cost model is used into
a pool in which the fair value model is used.
- The existence and the amount of any restrictions which may potentially affect the realisability of investment property or the remittance of income and proceeds from disposal to be received.
- Material contractual obligations to purchase or build investment property or to make repairs, maintenance or improvements thereto.
109
Disclosures applicable to investment property measured using the fair value model 1
In addition to the disclosures outlined above, the standard requires that an entity that uses the fair value model should present a reconciliation of the carrying
amounts of the investment property, from the beginning to the end of the reporting period,
showing the following
In addition to the disclosures outlined above, the standard requires that an entity that uses the fair value model should present a reconciliation of the carrying
amounts of the investment property, from the beginning to the end of the reporting period,
showing the following
110
Disclosures applicable to investment property measured using the fair value model 2
* Additions, disclosing separately those additions resulting from acquisitions, those resulting from business combinations and those deriving from capitalised expenditures subsequent to the property’s initial recognition.
* Assets classified as held-for-sale or included in a disposal group classified as held-for-sale, in accordance with IFRS 5 and other disposals.
* Net gains or losses from fair value adjustments.
* The net exchange differences, if any, arising from the translation of the financial statements of a foreign entity.
* Transfers to and from inventories and owner-occupied property.
* Any other movements
* Additions, disclosing separately those additions resulting from acquisitions, those resulting from business combinations and those deriving from capitalised expenditures subsequent to the property’s initial recognition.
* Assets classified as held-for-sale or included in a disposal group classified as held-for-sale, in accordance with IFRS 5 and other disposals.
* Net gains or losses from fair value adjustments.
* The net exchange differences, if any, arising from the translation of the financial statements of a foreign entity.
* Transfers to and from inventories and owner-occupied property.
* Any other movements
111
Disclosures applicable to investment property measured using the fair value model 3
In addition, an entity should disclose:
• A description of such an investment property;
• An explanation of why fair value cannot be reliably measured;
• If possible, the range of estimates within which fair value is highly likely to lie;
• On disposal of such an investment property, the fact that the entity has disposed of investment property not carried at fair value along with its carrying amount at the time of disposal and the amount of gain or loss recognised.
In addition, an entity should disclose:
• A description of such an investment property;
• An explanation of why fair value cannot be reliably measured;
• If possible, the range of estimates within which fair value is highly likely to lie;
• On disposal of such an investment property, the fact that the entity has disposed of investment property not carried at fair value along with its carrying amount at the time of disposal and the amount of gain or loss recognised.
112
Disclosures applicable to investment property measured using the cost model 1
* 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;
* 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;
113
Disclosures applicable to investment property measured using the cost model 2
• A reconciliation of the carrying amount of investment property at the beginning
and the end of the period showing the following details:
- Additions resulting from acquisitions, those resulting from business combinations and those deriving from capitalised expenditures subsequent to the property’s initial recognition;
- Disposals, depreciation, impairment losses recognised and reversed, the net exchange differences, if any, arising from the translation of the financial statements of a foreign entity, transfers to and from inventories and owner-occupied properties, and any other movements
• A reconciliation of the carrying amount of investment property at the beginning
and the end of the period showing the following details:
- Additions resulting from acquisitions, those resulting from business combinations and those deriving from capitalised expenditures subsequent to the property’s initial recognition;
- Disposals, depreciation, impairment losses recognised and reversed, the net exchange differences, if any, arising from the translation of the financial statements of a foreign entity, transfers to and from inventories and owner-occupied properties, and any other movements
114
Disclosures applicable to investment property measured using the cost model 3
• The fair value of investment property carried under the cost model. In exceptional cases, when the fair value of the investment property cannot be reliably
estimated, the entity should instead disclose:
- A description of such property;
- An explanation of why fair value cannot be reliably measured;
- If possible, the range of estimates within which fair value is highly likely to lie.
• The fair value of investment property carried under the cost model. In exceptional cases, when the fair value of the investment property cannot be reliably
estimated, the entity should instead disclose:
- A description of such property;
- An explanation of why fair value cannot be reliably measured;
- If possible, the range of estimates within which fair value is highly likely to lie.
