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Land Securities Group
Land Securities Group
Property purchased with the intention of earning a return on the investment either
through rental income, the future resale of the property, or both
Investment Property is the property (building) held to earn rentals or for capital
appreciation or both, rather than:
• Use in the production or supply of goods or services or for administrative
purposes
• Sale in the ordinary course of business
Investment property shall be recognized as an asset when and only when:
• It is probable that future economic benefits that are associated with the
investment property will flow to the entity
• The cost of investment property can be reliably measured
IFRS – IAS 40 INVESTMENT PROPERTY
• Investment properties are reported using either Cost or Fair value model
• Under Cost Model - Investment properties is stated as cost less accumulated
depreciation and any impairment losses. And fair value to be disclosed in footnotes
• Fair Value Model - Investment properties is stated at fair value (similar to open market
value)
• Encourages a firm to use an external appraiser in deriving fair value but
does not require it
WHY FAIR VALUE IS THE RULE?
• Investment banks and asset managers are accustomed to using fair value in their
day to day activities, so there is a strong motive from their end.
• GAAP profits are defined on a fair value basis and historically managerially
bonuses are recognized based on the GAAP profit numbers. So they also preferred fair
value.
• During Mergers and Acquisitions, pumping up value is always a good thing for the
investment banks which are involved in the process isn't it? So why not fair value
instead of historical value?
RELEVANCE V/S RELIABILITY
RELEVANCE RELIABILITY
Does not consider the effect It not only takes into account It does take into account the
of increase in investment the revaluation of investment revaluation effect on
property value, which is property but also reports the investment property but it
relevant information to revaluation gain through inappropriately reports the
assess the value of statement of changes in revaluation gain through
investment property. equity. profit and loss statement
Therefore, revaluation instead of changes in equity
model provides the most statement.
relevant information.
RELIABILITY
In terms of reliability of the Valuation of investment property is based on the estimates and of
value of investment property, similar investment property values in the market, which may be
cost model is most different from the actual value of the investment property.
appropriate as it is based on
the actual cost which is paid Although, it is relevant to revalue the investment property however it
at the acquisition of the will not be a reliable value due to dependency on the market
investment property. information.
RECOMMENDED METHOD
Although, the best model is revaluation model based on the reporting of true and fair valued of
profit and loss statement and balance sheet, however; the revaluation model is used for the
reporting and recording of fixed asset, such as property plant and equipment (PP&E).
Therefore, the best valuation model for Land Securities to record and report its investment
property is Fair value model
THANK YOU