M2: Assets (Investment Property IAS 40) Flashcards
(13 cards)
What is investment property?
Property held to earn rentals and/or capital appreciation rather than held for use within business (PPE) or for sale in ordinary course of business (inventory).
What is the difference between normal revaluation on a businesses PPE versus investment property?
Any Gain or loss goes to the SPL rather than the revaluation account.
When do we recognise Investment property?
There is a PROBABLE inflow of economic benefits
The cost can be reliably measured
What are some examples of Investment property?
Land: Held for long-term cap appreciation, Land held for a currently undetermined future use.
Buildings: Vacant building held to be leased out under a short-term lease, Building owned by the entity, leased out under a short-term lease
Property: Property that is being constructed for future use as investment property
How are investment property used when there is subsequent expenditure?
if it improves or enhances the asset, recognise it as an asset; otherwise, expense it through profit or loss (as a repairs or maintenance expense).
What should all investment properties be measured under which model and when wouldn’t they be measured under this model?
Fair value model
Once the fair value model has been chosen, all investment properties should be held at fair value
unless any specific property cannot be held at fair value because there was evidence at initial
recognition that the fair value would not be reliably measured on a continuing basis for that
property.
How do we measure investment property on:
- Initial measurement
- Subsequent measurement
Initial measurement: Cost + directly attributable expenses
Subsequent measurement: Cost model (same as PPE IAS 16) or Fair Value model
Fair value model:
Fair value determined by IFRS 13
Changes to Fair value recognised in SPL, NOT OCI
What happens when an investment property is sold?
Investment properties are derecognised when they are disposed of or are permanently withdrawn from
use and no future economic benefits are expected to be derived from the asset. Any gains or losses
are taken to profit or loss.
Is there depreciation on investment property held under the fair value model?
NO. Any changes are recognised in SPL.
The other person who is renting is likely to be doing the depreciation on their Right of use Asset
How do we disclose information relating to investment properties?
(SoFP, SPLOCI, SOCF, Notes)
SOFP: line item under Non- Current Assets
SPLOCI: Gains/ losses on revaluation of Investment properties on FV model included in expenses.
Depreciation on Investment properties on cost model also in expenses.
SOCF: Acquisitions/ proceeds from sale disclosed in investing activities section
Notes: Which model is applied. FV: extent to which valuation based on external valuation. Cost:
depreciation rate and useful life, fair value of the property. Reconciliation of opening and closing
balances.
What are the rules surrounding changing PPE to IP or IP to PPE?
Transfers may only be made when there is a change in use:
Change in management intention does not constitute a change in USE; there must be evidence of the change.
The change in use occurs when the property meets, or ceases to meet, the definition of an investment property
What happens when a property becomes an investment property, or vice versa?
PPE to IP
IP to PPE
PPE to IP:
- Measured as PPE (under IAS 16) til date of transfer
- Establish FV at transfer date.
- Difference at date is a PPE revaluation – gain to Revaluation surplus, loss to SPL
- Then IP. Remeasure FV each year end, gains or losses to SPL
IP to PPE:
- Establish FV at transfer date.
- Difference at date, gain/loss up to this date SPL
- Then PPE. Cost is the FV at transfer date.
- Remember to depreciate the PPE!
What is the journal entry when the IP is measured at cost model to then recognise under PPE?
DR PPE COST
DR IP ACC’N DEPN
CR IP COST
CR PPE ACC’N DEPN
