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Investment Property

This document defines investment property and outlines the accounting treatment for investment property. It states that investment property is property held to earn rentals or for capital appreciation rather than for use in operations or sale. Examples of investment property include vacant land or buildings held for leasing. The document discusses the initial and subsequent measurement of investment property, allowing for either the cost or fair value model. It also addresses the reclassification and derecognition of investment property.

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Djunah Arellano
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0% found this document useful (0 votes)
54 views16 pages

Investment Property

This document defines investment property and outlines the accounting treatment for investment property. It states that investment property is property held to earn rentals or for capital appreciation rather than for use in operations or sale. Examples of investment property include vacant land or buildings held for leasing. The document discusses the initial and subsequent measurement of investment property, allowing for either the cost or fair value model. It also addresses the reclassification and derecognition of investment property.

Uploaded by

Djunah Arellano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Investment Property

CLASSIFIED AS INVESTMENT
PROPERTY

• Investment property is defined as:


• property (land or a building—or part of a
building—or both) held (by the owner or by the
lessee under a finance lease) to earn rentals or
for capital appreciation or both, rather than for:
1. use in the production or supply of goods or
services or for administrative purposes; or
2. sale in the ordinary course of business.
APPLIC ABLE STANDARD AND
SCOPE

• Examples of investment property:


1. Land held for Long term Capital appreciation
• 2. Land held currently undetermined use
3. Building held under finance lease accounted for as a
finance lease and leased out under one or more
operating lease
4. Building owned by the entity and lease out under
one or more operating lease.
5. Building that is vacant but is held to be leased out
under one or more operating lease
6. Building that is being constructed or developed for
future use as investment property
APPLIC ABLE STANDARD AND
SCOPE

• Items not considered Investment Property


Ø Property intended for sale in the ordinary course of business or in the
process of construction or development for such sale (IAS 2: INVENTORY)
Ø Owner occupied property
• Property held for future use as owner-occupied property
• Property held for future development and subsequent use as owner-occupied
property
• Property occupied by employees
• Owner-occupied property awaiting disposal
CLASSIFIED AS INVESTMENT
PROPERTY
• Some properties comprise a portion held as investment property and
another portion NOT held as investment property.
• If these portions:

Could be sold or leased out separately under a finance lease


separately Þ an entity accounts for the portions separately

Could not be Þ the property is investment property


sold separately only if an insignificant portion is NOT held as
investment property
CLASSIFIED AS INVESTMENT
PROPERTY

An entity owns property that is leased to, and occupied by, its parent
or another subsidiary
Consolidated
Þ The property does not qualify as investment property in the consolidated
financial statements, because the property is owner-occupied from the
perspective of the group
Þ But, from the perspective of the entity that owns it, the property is investment Individual
property if it meets the definition of investment property
• The lessor treats the property as investment
property in its individual financial statements.
PROVISION OF ANCILLARY
SERVICES

Ø The property is accounted for as an investment property if


the ancillary or support service is only an insignificant
component of the arrangement (i.e. the property owner
provides security and maintenance service to its tenants of
condo)
Ø The property is accounted for as an owner occupied
property if the ancillary or support services is a significant
component of the arrangement as in the case of an owner-
managed hotel.
RECOGNITION

Recognition criteria Initial Cost Subsequent Expenditure

• Same as IAS 16 Property, Plant and Equipment


• Investment property shall be recognised as an asset when, and only when:
a) it is probable that the future economic benefits that are associated with the investment
property will flow to the entity; and
b) the cost of the investment property can be measured reliably.
MEASUREMENT AT
RECOGNITION
• An entity is required to initially
recognize and measure an investment
property at its cost, including
transaction costs.
• This requirement together with the
definition of the cost is similar to that
of property, plant and equipment
SUBSEQUENT MEASUREMENT
Cost Model

• For an entity that chooses the cost model, the entity


should measure all of its investment property in
accordance with the cost model in IAS 16
CARRYING AMOUNT= Cost- Accumulated Depreciation - Accumulated Impairment loss

• FAIR VALUE MODEL


NOTABLE DIFFERENCE

Cost Model Fair Value model


Amount reported Cost. Xxx Fair value at year
in the financial Less: A/D. XXX end
statements Less: IM. (XXX)
Depreciation The property is The property is
depreciated over not depreciated
its useful life
Changes in Fair Not recognized Reported in profit
value but disclosed in or loss
the financial
statements
5. MEASUREMENT AFTER
RECOGNITION Example

Fair value model (e.g. IAS 40) Revaluation model (e.g. IAS 16)

• Refers to fair value • Refers to fair value

• Change in fair value recognised in • Change in fair value recognised


profit or loss for the period in which it directly in equity (or other
arises comprehensive income)

• No depreciation or amortisation is • Depreciation or amortisation is


required required

• Reflect market conditions at the end of • Not clearly defined, only require
reporting period (i.e. revalued at each sufficient regular that no material
balance sheet date) different from fair value

• N/A • Deficit about fair value below


depreciated or amortised cost is
recognised in profit or loss
RECLASSIFIC ATION

COST MODEL
üReclassification between investment property,
owner-occupied property, and inventory shall
be made at carrying amount
üNo gain or loss shall be recognized on the
transfer
RECLASSIFIC ATION
FAIR VALUE MODEL

Reclassification Valuation Treatment of the difference


From to
Investment Inventory/owner Fair value Recognition in profit od loss
property -occupied at the date
Inventory Investment of change
property
Owner-occupied Investment 1. Fair value > Carrying amount
property property Ø Revaluation surplus
Ø Iif previously impaired, increase
P/L to the extent that it
reverses the previous
Ø 2.Fair value < carrying amount
Ø Charge to revaluation surplus if
any
Ø Impairment loss
7. DERECOGNITION (OR
DISPOSALS)

• An investment property shall be derecognised


(eliminated from the balance sheet):
1. on disposal or
2. when the investment property is permanently withdrawn from
use and no future economic benefits are expected from its
disposal
• Gains or losses arising from the retirement or disposal
of investment property shall be determined as the
difference between
1. the net disposal proceeds and
2. the carrying amount of the asset,
16

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