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Summary IAS 40 Investment Property -
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Investment Property (IAS 40):Property which could be land, building which is held to either earn rental income (rent out to
third parties and earn income) or which you hold for capital appreciation (market value
increases in future).
Applies for many different companies which operate in different industries – might want to
hold property for investment purposes.
Different types of property which companies may own:
- Property held as inventory (IAS2) – property held for sale in the ordinary course of
business.
The main purpose behind holding the asset (inventory) is to sell it at a markup - the asset is
recognised as inventory IF and ONLY IF it is related to the course of business.
Eg Car dealership buying cars for resale = inventory
BUT if the dealership purchases a house with the intention of resale, it is NOT considered as
inventory because the house is not related to the course of business.
- Owner-occupied Property / Property Plant & Equipment (IAS 16) – Property held for
use in the production or supply of goods or services of for administrative purposes.
It is directly or indirectly involved in the production of inventory / process of generating
income. PPE indirectly allows us to earn income by using the PPE to hold manufacturing
processes (eg at a factory). Any land which will be purchased with the intention of it being
built as an extension to the company’s factory will classify it as PPE.
- Investment Property (IAS 40) – Property (land or a building) held to earn rentals
or for capital appreciation.
IP falls under Non-Current Assets
The asset will NOT fall under IAS 40 if :
- It Is held for resale and falls under the entity’s ordinary course of business must no
- It is used in the production or supply of another good or service
- It is used for administrative purposes to produce other goods and services.
-
(-Asset held for resale IAS 5 )
, The measurement of each asset
IAS 40 measurements:
1) Cost Model (cost – acc dep – imp losses)
Costs less accumulated depreciation less accumulated impairment losses
2) Fair Value Model
Measure at Fair Value with the movement in fair value going in PL
Debit Investment Property
Credit PL
Examples of IAS 40 – Investment Property:
- Land held for long-term capital appreciation rather than for short-term sale in the
ordinary course of business – held for appreciation and NOT short term sale (ordinary
course of business).
- Land held for a currently undetermined future use - not sure what to do with it yet
- A building owned by the entity and leased out under one or more operating leases
- A building that is vacant but is held to be leased out under one or more operating
leases
- Property that is being constructed or developed for future use as investment property
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