PAS 40 Investment Property

Inability to Determine Fair Value Reliably

Investment property
● In rare cases, when a property is first acquired
● It is defined as a property (land or building or or its use changes, it may be hard to reliably
part or both) held by an owner or rented by the determine its fair value. In such cases, the
lessee under finance lease, to earn rentals or for property is valued at cost instead, with an
capital appreciation or both. assumption that its residual value is zero.
● Only land and building, because they are ● Even if one property is measured using the cost
non-movable property model, other investment properties should still
be valued at fair value.
Owner-occupied property
● Property held by an owner for use in the Transfers of investment property
production or supply of goods or services or ● Transfers to and from investment property shall
administrative purposes made only when there is a change of use
evidenced by:
Property that is partly investment and partly a. Commencement of owner occupation -
owner-occupied transfer from investment property to
owner-occupied property
● If both portions are separable i.e. (could be sold
b. Commencement of development for
or leased out separately under finance lease),
sale - transfer from investment property
then entity should account for each portion on
to inventory
individual basis
c. End of owner occupation - transfer from
● If both portions are not separable it will be
owner-occupied property to investment
treated as investment property only if an
property
insignificant part of such property is held for
d. Commencement of an operating lease
manufacturing or administrative purposes
to another entity - transfer from
● If an entity provides ancillary services (meals,
owner-occupied property to investment
cleaning, security, utilities, and maintenance
property
services) to the occupants of a property, it is
investment property, if the services are
insignificant in the arrangement Measurement of Transfers
1. If using the cost model, transfers between
Property leased to an affiliate investment property, owner-occupied property,
and inventory are recorded at carrying amount.
● Investment property for the individual entity who
owns it as they lease to a parent or a subsidiary 2. When transferring from investment property (at
● Owner-occupied property if from the perspective FV) to owner-occupied or inventory, the fair
of a group and for the purpose of consolidated value becomes the new cost for future records.
financial statements
3. If owner-occupied property is transferred to
Recognition of Investment Property investment property to be carried at FV, the
difference between its FV and carrying amount
● Future economic benefits are probable to flow to
is treated as revaluation.
the entity
● Cost is reliably measurable 4. If inventory is transferred to investment property
to be carried at FV, remeasurement shall be
Initial measurement of investment property included in profit or loss.
● At Cost including Transaction Costs 5. When an under-construction investment
● The cost of Investment Property includes: property is completed and to be measured at fair
- Purchase Price and value, the difference between the FV and
- Any directly related cost such as carrying amount is recorded in profit or loss.
(professional or legal charges, property
transfer taxes & any other transaction
Derecognition of Investment Property
costs)
● Sold
Subsequent measurement of investment ● Out of use
property ● No longer provides economic benefits
1. Fair Value Model - Property is at fair value, Disposal of Investment Property
changes are reported in profit or loss; No
depreciation is recorded ● The gain or loss from selling an investment
2. Cost Model - Cost less accumulated property is the difference between the net
depreciation and accumulated impairment loss disposal proceeds and the carrying amount
(Recorded against P/L); Fluctuations in the FV
are not recognized Disclosures for Investment Property
Fair value of investment ● If measured using the cost model or fair value
model
● The price in the principal market used to ● Rental income and any related expenses
measure fair value shall not be adjusted for ● Restrictions on the property
transaction cost ● Contractual obligations to buy or construct
● The fair value of investment property excludes investment property
prepaid or accrued operating lease income