IAS 40 - Investment Property

Nguyễn Đình Hoàng Uyên

 Objective of IAS 40
 Prescribe the accounting
treatment for investment
property and related disclosure
requirements

 Effective Date: 1 January 2005

Contents

1. Classification
2. Recognition
3. Measurement
4. Transfers
5. Derecognition
6. Disclosure
1. Classification
What is Investment Property? owner-occupied property?

 To earn rentals, or
By the owner
 For capital appreciation, the lessee
Property  Both
Ex Land, building or
part of a building; or  Production or supply of goods/services.
both)
 Administrative purposes

 Sale in ordinary course of business

➔➔ ➔ distinguish: largely independently cash flows

 Ex
 (1) land held for long-term capital appreciation rather than for short-term
sale in the ordinary course of business.
 (2) land held for a currently undetermined future use. (If an entity has not
determined that it will use the land as owner-occupied property or for
short-term sale in the ordinary course of business).
 (3) a building owned by the entity (or held by the entity under a finance
lease) and leased out under one or more operating leases.
 (4) a building that is vacant but is held to be leased out under one or more
operating leases.
 (5) property that is being constructed or developed for future use as
investment property

IAS 40. 8
 Ex
 (6) property intended for sale in the ordinary course of business or in the
process of construction or development for such sale (see IAS 2) for example,
property acquired exclusively with a view to
subsequent disposal in the near future or for development and resale.
 (7) owner-occupied property (see IAS 16), including (among other things)
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 (whether or not the employees pay rent
at market rates) and owner-occupied property awaiting disposal.
 (8) property that is leased to another entity under a finance lease.

IAS 40. 9
Ex
(9) For rent, for capital appreciation and held for use

(10) For rent and provides insignificant ancillary services

(security and maintenance services)

(11) For rent and provides significant ancillary services

(an entity owns and manages a hotel, services provided to
guests )

IAS 40. 10, 11, 12

EX Inter-company rentals

An entity Rent, lease Its parent or

another subsidiary
for use.

Individual financial statements: investment property

Consolidated financial statements: PPE
2. Recognition

➢ Probable future economic benefits

when
➢ Cost reliably measurable

Similar IAS 16
 3. Measurement

Cost
Initial measurement = purchase price + Directly attributable cost

Include:
✓ Professional fees,
✓ Property transfer taxes
✓ Other transaction costs.
Not include
x Start – up costs
x Operating losses
x Abnormal waste

Note: if payment is deferred : cost = Cash price equivalent (%).

Different is recognized as interest expense over the period of credit [.24]
 3. Measurement

+ Cost, if:
replace part of a property.

Expenditures after initial recognition

+ Expensive (P/L), if:

repairs and maintenance (the costs
of the day-to-day: labor and
consumables, the cost of minor parts.

IAS 40.17,18
 3. Measurement
Fair value model

✓ Investment property is re-measured to FAIR VALUE

Subsequent ✓ Gain /loss from re-measurement: in P/L
measurement ✓ No depreciation charged
➔ Differs from revaluation model under IAS 16

Cost Model
IFRS 5, if:
held for Sale and Carrying amount = cost – accumulated
Discontinued depreciation – accumulated impairment loss
Operations. [56]
cost model in accordance with IAS 16.
Note:

property interest held by a lessee under an operating lease is

classified as an investment property ➔ Fair value model, not elective
 4. Transfers

 When ➢ change in use.

an owner-occupied property, inventories <==➔ investment property (cost model)

➢ Recogized at Carrying amount of the transferred property, not revaluation.

an owner-occupied property, inventories ➔ investment property (FV model)

➢ Recogized at: Fair value. revaluation at the transfer date

Gain or loss from revaluation: Gain or loss from revaluation:

accordance with IAS 16. in profit or loss.
an owner-occupied property ➔ investment property inventories ➔ investment property
5. Derecognition

When ➢ On disposal
➢ When permanently withdrawn form use

GAIN or LOSS (in P/L)

Net disposal proceeds – carrying amount
6. Disclosure

See IAS 40. 74 → 79