IAS 40 – Investment Property

IAS 40 – Investment Property

IAS – 16
Property IAS – 40
Owner Occupied Investment
Property Property

Land or buildings or both Land or buildings or both

Held by owner or lessee under Held by owner or lessee under

finance lease finance lease

For use in supply of goods and To earn rental income or for

services or for admin purpose capital appreciation
 IAS 40 – Investment Property
Investment Property
Includes
 Land held for long-term capital appreciation
rather than for short-term sale in the ordinary
course of business.
 Land held for a currently undetermined future
use.
 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.
Excludes
 Property intended for sale in ordinary course of
business of the entity
 Owner-occupied property, including property held
for future use as owner-occupied property
 Owner-occupied property occupied by employees
 Owner-occupied property awaiting disposal
 Property leased under finance lease
 Owner-occupied held for future development and
subsequent use as owner-occupied property
 Mineral rights and mineral reserves
IAS 40 – Investment Property

Investment Property

Recognition
Measurement

As an asset when: Initially at Cost

Includes

Future economic Cost can be Purchase Non Directly

benefits are measured price refundable attributable
probable reliably taxes costs
IAS 40 – Investment Property

Cost
Purchase price Startup costs

Non-refundable taxes Abnormal losses

Excludes
Includes
Operating losses before
Professional fees and
achieving planned level
Transaction Costs
of occupancy

Interest on deferred
Directly attributable
consideration
costs

Cost of significant new parts Cost of day to day servicing

 IAS 40 – Investment Property
Illustration Solution
SMA Ltd. purchased an IP at a cost of Rs.110,000 Purchase price
Sales tax included in the price was 10% (110,000/110%*10%) (Rs.10,000)
Fees paid to consultant amounted to Rs.15,000 Consultant fee
Following costs were incurred on the construction of a new floor: Material
- Material Rs.25,000 Labor
- Labor Rs.16,000 Overheads
- Direct Overheads Rs.4,000 Rent for machinery
- Security guard salary Rs.8,000 Deferred Consideration Rs.34,000
- Rent for machinery Rs.6,000 ÷ (1+10%)^3
Apart from purchase price a consideration of Rs.45,254 Demolishing Cost Rs.50,000
shall be paid in 3 year’s time. ÷ (1+10%)^10
Interest on deferred consideration is paid @ of 10%
The building shall be demolished at the end of its useful life Cost of Building Rs.250,000
of 10 years at an estimated cost of Rs.129,687

Interest expense – P&L (Rs.34,000*10%) Rs.3,400

IAS 40 – Investment Property

Subsequent Expenditure

IF
Will generates
economic benefits Amount can be Pertains to day to Pertains to repairs
for more than 12 measured reliably day servicing and maintenance
months

Capitalize Replacement Expense Out

Cost
Replacement part is recognized
Replaced part is derecognized
as IP
IAS 40 – Investment Property

Subsequent Measurement
Carried at Fair Value on every reporting date
Carried at Cost Less Accumulated Depreciation
Semi
Quarterly Annual
Annual
Depreciation expense
is charged to P&L FV changes for the period
Fair value are charged to P&L
Impairment may be Cost Model
recorded
Model No impairment and
depreciation
No revaluation is
allowed
All IP shall be accounted
for using FV model There are
All IP shall be accounted for using cost model Exceptions
IAS 40 – Investment Property
An IP whose FV is NOT
Carried at Fair value on every reporting date
1 reliably measurable

Exceptions
FV changes for the period
are charged to P&L
Shall be carried Residual value
at Cost Model shall be ignored
Fair value No impairment and
Only that specific IP shall be
Model depreciation
carried at cost model

Subsequently, even if FV
All IP shall be accounted for using FV model becomes measurable, the IP
shall be carried at cost model
until disposal
IAS 40 – Investment Property
An IP whose FV subsequently
Carried at Fair value on every reporting date
2 becomes unmeasurable

Exceptions
FV changes for the period
are charged to P&L But there is reasonable
expectation that FV shall become
measurable subsequently
Fair value No impairment and
Model depreciation
IP shall be carried at last know FV

When FV becomes measurable the

All IP shall be accounted for using FV model difference in last known and new
FV shall be recognized in P&L
IAS 40 – Investment Property
Under construction
Carried at Fair value on every reporting date
3 investment property

Exceptions
FV changes for the period Fair value is not reliably
are charged to P&L
measurable due to IP being
under construction
Fair value No impairment and
Shall be carried No dep. as asset is
Model depreciation
at Cost under construction

Upon completion IP shall be

carried at fair value
All IP shall be accounted for using FV model
Upon completion any difference in cost
and FV shall be charged to P&L
IAS 40 – Investment Property

Change in Accounting Policies

IAS – 8
An entity shall change an accounting policy ONLY if the change
results in the financial statements providing reliable and more
relevant information about the effects of transactions, financial
performance or cash flows. (IAS 8.14b)

This means
That accounting policy can only be changed if it
present a more reliable and relevant view of
entity’s financial statements for its users and its
financial information than the previous policy
IAS 40 – Investment Property

Change in Accounting Policies

FV Model to Cost Model Cost Model to FV Model

Due to failure of Due to subsequent

Voluntary Change Voluntary Change
identification of identification of
(Under IAS 8) (Under IAS 8)
FV subsequently FV

Not Allowed Not Allowed Allowed Not Allowed

IP is continued to Information is more As change results in IP is continued to be

be carried at last reliable and relevant information being more carried at carrying
known FV under FV model reliable and relevant amount
IAS 40 – Investment Property

For entity’s As entity’s To rent out Let out to For entity’s As entity’s
personal use head office to tenant tenant personal use head office

Treated as

Vacate IP Rented

Put in
Vacate
use

PPE Transfers IP Put in

Acquired
use
IAS 40 – Investment Property

PPE Transfers
IP To Be Carried at Fair Value Model
The property under IAS 16 shall be revalued to
fair value (irrespective of model of accounting for
IAS 16)
Gain or loss on revaluation shall be treated as per
IAS 16
Derecognize the property as PPE and record as IP
Subsequent gains/losses on remeasurement of
property shall be treated as per IAS 40
IP
Illustration
SMA Ltd. purchased a building on Jan 1, 2019 for Rs.200,000 for their
head office with a useful life of 20, years.
On Sep 30, 2019 it was vacated and held for capital appreciation.
The FV of the building on the date of transfer was Rs.249,500. PPE is
carried at cost and IP is carried at FV
Fair value on Dec 31, 2019 it was Rs.260,000
Solution
IAS 40 – Investment Property
PPE Transfers
IP To Be Carried at Fair Value Model
The property under IAS 16 shall be revalued to
fair value (irrespective of model of accounting for
IAS 16)
Gain or loss on revaluation shall be treated as per
IAS 16
Derecognize the property as PPE and record as IP
Subsequent gains/losses on remeasurement of
property shall be treated as per IAS 40
IP
IP To Be Carried at Cost Model
Derecognize any accumulated depreciation
against the property to bring it to carrying
amount
Derecognize the property as PPE and record as IP
IP shall be depreciated at its remaining useful life
at the date of transfer/reclassification
 IAS 40 – Investment Property

PPE Transfers IP
Illustration
IP To Be Carried at Cost Model
SMA Ltd. owns a building at a cost of Rs.300,000 & acc. depreciation
Rs.90,000 on Jan 1, 2019. On Sep 30, 2019 the building was held for Derecognize any accumulated depreciation
capital appreciation. Total useful life of building is 20 years.
FV on the date of transfer was Rs.250,000. PPE and IP both are carried
against the property to bring it to carrying
at cost model. amount
FV on Dec 31, 2019 was Rs.185,000. There are no cost of disposal
Derecognize the property as PPE and record as IP
Solution
IP shall be depreciated at its remaining useful life
at the date of transfer/reclassification
IAS 40 – Investment Property

PPE Transfers IP
Illustration
IP Carried at Fair Value Model
SMA Ltd. purchased an Investment property, which is carried at FV
model, at a price of Rs.300,000 on Jan 1, 2019
The property under IAS 40 shall be revalued to On Sep 30, 2019 it was decided to be used as head office. The fair
fair value value on the date of transfer was Rs.320,000.
Remaining useful life on the date of transfer was 10 years.
PPE is carried at cost model. Year end is Dec 31, 2019
Gain or loss on revaluation shall be charged to
P&L Solution
Derecognize the property as IP and record as PPE
Subsequent measurement of PPE shall be done as
per IAS 16
IAS 40 – Investment Property

PPE Transfers IP

IP Carried at Fair Value Model IP Carried at Cost Model

The property under IAS 40 shall be revalued to Derecognize any accumulated depreciation
fair value against the IP to bring it to carrying amount

Gain or loss on revaluation shall be charged to Derecognize the property as IP and record as PPE
P&L
Subsequent measurement of PPE shall be done as
Derecognize the property as IP and record as PPE
per IAS 16
Subsequent measurement of PPE shall be done as
per IAS 16
IAS 40 – Investment Property

PPE Transfers IP
Illustration
IP Carried at Cost Model
SMA Ltd. purchased an Investment property, which is carried at cost
2019 Useful life of the
model, at a price of Rs.300,000 on Jan 1, 2019.
building is 10 years. Derecognize any accumulated depreciation
On Sep 30, 2019 it was decided to be used as head office. against the IP to bring it to carrying amount
PPE is carried at cost model. Year end is Dec 31, 2019

Solution Derecognize the property as IP and record as PPE

Subsequent measurement of PPE shall be done as

per IAS 16
IAS 40 – Investment Property
Expense
Marketing incurred to
started for bring the
Rented to a
attracting a
Inventory
wiling buyer
Transfers
tenant
IP property into
saleable
condition
Put on Market Let Out Development

IAS-02 IAS-02 IAS-02 IAS-40 IAS-40 IAS-02

Acquired Took of Market Vacant Sold

With the With the
intention to Property sold
intention to
rent the Tenant left to a potential
sell it in
property buyer
normal course
of business
IAS 40 – Investment Property

Inventory Transfers IP
Illustration
IP Carried at Fair Value Model
SMA Ltd. owns an investment property whose FV on Jan 1, 2019
was Rs.150,000. IP is carried at FV model
The property under IAS 40 shall be revalued to 2019 it was decided to sell the building in ordinary
On Sep 30, 2019,
course of business of the entity. FV on this date was Rs.185,000
fair value FV of the building on Dec 31, 2019 was Rs.200,000

Gain or loss on revaluation shall be charges to

P&L
Solution
Derecognize the property as IP and record as
Inventory
Fair value on the date of transfer shall be deemed
to be the cost of inventory for subsequent
measurement
IAS 40 – Investment Property

Inventory Transfers IP

IP Carried at Fair Value Model IP Carried at Cost Model

The property under IAS 40 shall be revalued to Derecognize any accumulated depreciation
fair value against the IP to bring it to carrying amount

Gain or loss on revaluation shall be charges to Derecognize the property as IP and record as
P&L inventory

Derecognize the property as IP and record as

Subsequent measurement shall be as per IAS 02
Inventory
Fair value on the date of transfer shall be deemed
to be the cost of inventory for subsequent
measurement
IAS 40 – Investment Property

Inventory Transfers IP
Illustration
IP Carried at Cost Model
SMA Ltd. purchased a building on Jan 1, 2019, for the purpose
capital appreciation, at a cost of Rs.200,000.
The useful life of building was 20 years and is carried at cost model Derecognize any accumulated depreciation
On Sep 30, 2019 the building was decided to be sold in the against the IP to bring it to carrying amount
ordinary course of business. The FV on that date was Rs.300,000
Derecognize the property as IP and record as
Solution inventory

Subsequent measurement shall be as per IAS 02

 IAS 40 – Investment Property

Inventory Transfers IP
Inventory is always transferred to Investment Property at lower of cost or NRV irrespective of the model of
accounting for investment property
Subsequent measurement is done as per the model of accounting

Illustration Solution
SMA Ltd. sells building in its routine business. A building, costing
Rs.200,000, which was held to be sold was rented on Sep 30, 2019
2019.
Fair value of this building on the date of transfer was Rs.210,000
and it will cost Rs.15,000 to sell the building
On the date of transfer the remaining useful life of the building was IP
20 years and fair value on Dec 31, 2019 was Rs.250,000
IAS 40 – Investment Property

Joint use Properties

Properties which are partly used for
production/supply of goods or for admin purpose
& partly used to earn rental income
Both parts shall be If both parts are
accounted for separately separately saleable

Accounting is done on the If both parts are NOT

basis of significant use separately saleable
IAS 40 – Investment Property

Ancillary Services
Maintenance and such support services are provided to lessee
Definition for their facilitation

If Significant If Not Significant

passive investment
active investment

In relation to property
Considered as

Considered as
In relation to property
Constitutes a major part of Does not constitutes a major
entity’s cash flows part of entity’s cash flows

Property CAN NOT be classified Property CAN be classified as an

as an investment property investment property

The investor should be seen as a passive investor rather than an active one
IAS 40 – Investment Property

Disclosure Requirements
Carried At Fair Value Carried At Cost
Opening Fair value / Cost 850,000 180,000
Opening Accumulated Depreciation (35,000)
145,000
Additions 120,000
Disposals (50,000)
Transfers
- Inventory to IP 85,000
- PPE to IP 45,000
- IP to Inventory (64,000)
- IP to PPE (35,000)
Fair value Gain/(Loss) 29,000
Depreciation Expense (34,000)
Impairment Expense (16,000)
Closing Balance 980,000 95,000
THE
END