This document explains what IAS 40 - Investment property is and how to recognise it. The differences between Investment property, Owner occupied property, and Inventory are also discussed. Recognition, Classification, and measurement are explained along with key concepts of deferred payments and di...
• To prescribe the accounting treatment for investment property and related
disclosure requirements.
Scope:
• Applies to :
o Recognition
o Measurement
o Disclosure
What is investment property?
• Land or building
• Held by (owner/lessee)
• To earn rentals/capital appreciation or both.
It is not:
• Used in production/supply
• Administrative purpose
• Sale in ordinary course of business
Investment property (IP) VS Owner Occupied Property (OOP)
IP OOP
Only land and buildings Not limited to just land or building (can be a
vehicle)
Rented out to earn rental income To use in the business process
Want to benefit from increase in value in IAS 16 PPE
long term (capital appreciation).
IAS 40
,Classification of property as Investment Property (IP) or Owner Occupied
Property (OOP):
IP OOP
Generates cashflows largely independent of Generates cashflows not only from the
other assets. property but also from other assets used in
production/supply process.
IP OOP Inventory
Building owned by entity and is Entity's building occupied by Property intended for
leased under operating lease employees of the entity sale in ordinary course
Property for future use as Future use as owner-
investment property occupied
Vacant land to be leased Head office building
Land held for capital appreciation
• IAS 40 = 40 specifically excludes property occupied by employees, regardless of
whether they pay rent at market related rates or not.
Recognition:
• Meet the investment property definition.
AND
• Recognise as an asset only when and only:
o Probable that future economic benefits will flow
o Cost measured reliably
, Cannot be sold separately:
Is PPE portion significant?
• Yes = recognise the entire property as PPE.
• No = recognise the entire property as IP.
Is IP portion significant?
• Yes = recognise the entire property as IP.
• No = recognise the entire property as PPE.
Classification as Investment Property or Owner occupied property:
• Provision of ancillary services
• Ancillary = additional support services to tenants.
• If the services are insignificant to the renting of the property then it is IP (e.g security
services)
• If services provided = significant = OOP
• Entities develop criteria to apply judgement consistently.
• Examples of significant ancillary services:
o WIFI services provided to tenants
o Cleaning services
o Gym facilities
Initial measurement:
1. Replacement of significant parts - capitalise and derecognize replaced part.
2. Subsequent cost: cost incurred to add, replace or service property.
3. Repairs, maintenance, day to day servicing minor parts = need to expense.
4. Initial cost = cost + directly attributable cost.
Deferred payment terms:
• Payment is deferred beyond normal credit terms.
• Measure cost at cash price equivalent (total payments less total interest expense).
Interest expense is recognised as expense over period.
Exchange transaction:
• If one non-monetary asset (asset is not cash or cash equivalents) is exchanged for a
new PPE Item.
• The cost of the item is the fair value of the asset given up.
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