IAS 40 Investment Property

05/03/2023IAS 40 Investment Property1

IAS 40

INVESTMENT PROPERTY


OBJECTIVE & SCOPERecognition, measurement & disclosure Matters excluded Investment property Investment property

under finance lease in lesee’s FS

Investment property under operating lease in lessor’s FS

Classification of leases Lease income from

investment property Operating leases in lessee’s

financial statements Finance lease in lessor’s FS Sale and leaseback

transactions Disclosure of finance and

operating leases Biological assets Mineral rights and reserves


Definitions•Amount recognised in balance sheet

Carrying amount

•Amount paid or fair value of consideration to acquire asset•Amount recognised in accordance with another IFRSCost•Amount for which asset could be exchanged at arm’s length between knowledgeable, willing parties

Fair Value


Definitions

•Property held for rent or capital appreciation•Not for sale or use in production

Investment

property•Property held for production, supply of goods & services or administrative services (IAS 16)

Owner occupied property


Classification alternativeLessee must recognise all investment property at fair value and fair value disclosures made


Examples of investment property

Investment Property

Not investment property


Combinations and ancillary services

Investment

Property

•Insignificant portion used for production/admin•Insignificant ancillary services e.g. maintenance & securityOwner

Occupied

Property

•Significant portion used for production /sales/admin•Significant ancillary services e.g. owner managed hotelSeparat

e portion

s

•Investment and owner-occupied portion can be sold separately•Account for them separately


RecognitionProbable future

economic benefit

Cost can be measured

reliably

Recognise investment

property asset

Costs to acquire property

Costs to add or replace parts of

property

Exclude costs of daily

servicing

Expense as repairs and

maintenance

Derecognised carrying value of parts replaced

Recognise replacement parts

as part of asset when incurred


Measurement at recognition

Measure at cost including

transaction costs

Purchase price

Direct expenditur

e

Deferred cash price equivalent

(interest expensed)

Costs when construction complete

Legal fees

Property transfer taxes


Exclude from cost at recognitionStart up costs

Operating losses before planned level of occupancy

Abnormal waste or development expenditure


Investment property held under a lease

Lower of FV and PV of minimum lease

paymentsAsset

Include premium paid for lease

LiabilityExclude premium paid for

lease


Investment property exchanged for another assetFair value of asset given up unless FV of asset received more clearly evident

Carrying value of asset given up

Fair value can be

measured reliably

Able to assess

probabilities

Range of estimated values similar

Fair value

Lacks commercial substance

Significant change in value

of operations affected

Change in risk , timing and

amount of post tax cash flows

Not reliably measurable


Measurement after recognition: Accounting Policy

Choose and apply to all investment property

Fair Value Model

Recognise gain or loss in P&L of each period

Change from FV to cost model not appropriate

Cost Model

Disclose FV (professional valuation recommended)

Rebuttable presumption that FV can be measured or residual value must be zero


Fair ValuePrice between knowledgeable

willing parties in arms length transaction

Exclude special financing

terms

Include disposal

costs

Reflect market conditions at balance sheet

date

Include rental income and

similar outflows


Fair Value Model Measure all investment properties at fair value Investment under operating lease may not be measured at cost

after initial recognition; it must be measured at fair value Recognise gains and losses from changes in fair value in the

profit and loss account until disposal Once held for sale, measure investment property according to

IFRS 5 Fair value must reflect market conditions at the balance sheet

date Current prices in active market for similar property in same location and

condition under similar lease or other contract Current/recent prices adjusted to reflect differences

If reasonable estimate of fair value not available for a particular property, use IAS 16 cost model in exceptional cases Residual value must be zero Apply IAS 16 cost model until disposal


Transfers to and from investment propertyowner-occupation

(fair value at date of change in

use)

Commence operating

lease to 3rd party


Disposals Derecognise from balance sheet when no

future economic benefit expected Net disposal proceeds – carrying amount =

profit/loss in period of disposal Ias 17 for sale and leaseback Recognise compensation for impairment or

loss in profit & loss when receivable


Disclosure: Fair Value Model & Cost Model•Whether fair value or cost model applied•Reasons for classifying property under operating lease as investment propertyModel

•Criteria to distinguish owner-occupied from investment property•Methods and assumptions to calculate fair value•Market evidence to support fair value•Whether or not a professional valuation was obtained

Value•Restrictions on realisability (existence and amounts)•Contractual obligations to develop, repair, maintain or enhance investment property

Obligations


Disclosure: Fair Value Model and Cost Model

•Rental income•Direct operating expenses relating to rental income•Direct operating expenses not related to rental income•Cumulative change in fair value from sale of asset at cost to fair value pools

Amounts in profit or loss

•Reconciliation between carrying amounts at beginning and end of period•Reconciliation between valuation obtained and valuation included in financial statements (if adjusted)

Fair value model

•Description of investment property•Reason why fair value cannot be determined•Range of estimates in which fair value is likely to fall•Disposal of investment property not carried at fair value (carrying amount and recognised gain or loss)

Cost model


Cost model: Additional disclosure Depreciation methods used Useful lives Gross carrying amount Accumulated depreciation and impairment loss at beginning and end of

period Reconciliation of carrying amount at beginning and end of period Additions

From subsequent expenditure From acquisitions

Assets classified as held for sale Depreciation Impairment loss recognised and reversed Net exchange differences on translation Transfers to and from inventories and owner-occupied property Fair value of investment property or

Description of property Reason why fair value cannot be determined Range of estimates in which fair value is likely to lie


Fair value model: Additional disclosure Reconciliation between carrying amount at

beginning and end of period Additions

From acquisition From subsequent expenditure From acquisitions through business combinations

Assets classified as held for sale Net gain or loss from fair value adjustments Net exchange difference on translation Transfer to and from inventories and owner-

occupied property Other changes


Transitional provisions Apply initial measurement in exchange of assets

prospectively to future transactions only. Entity elects for the first time to classify all eligible

property under operating lease as investment property Adjust opening balance of retained earnings in period

election first made If no fair value previously disclosed, do not adjust opening

balance of retained earnings for earlier period or restate comparatives

If fair value previously disclosed, encouraged but not required to: Adjust opening balance of retained earnings for earliest period

presented Restate comparative information for those periods


Summary Investment property is held for rent or capital appreciation Measure initially at cost including transactions costs Choose fair value or cost model after initial recognition and

apply to all properties Recognise all investment property under operating lease at

fair value after recognition Recognise changes in fair value in profit & loss for the period Classify according to IFRS 5 once held for sale Transfer when investment property becomes owner-

occupied or used in another way Derecognise when disposed and recognise profit or loss on

disposal Make detailed disclosures and reconciliations of opening and

closing carrying values

Business

IAS 40 Investment Property