INVESTMENT

PROPERTY
CHAPTER 9
Learning Objectives
1. Define investment property and give
examples.
2. State the initial and subsequent
measurements of an investment
property.
3. Account for the impairment of
investment property, and the reversal
thereof
INTRODUCTION
Investment Property – is
land and/or building held
for rentals or capital
appreciation.
Examples:
Land held for long-term capital appreciation rather than for
short-term sale in the ordinary course of operations.

Land held for a currently undetermined future use.

A building owned by the entity (or held by the entity under a

finance lease) and leased out under one or more operating leases
on a commercial basis.

A building that is vacant but is held to be leased out under one or

more operating leases on a commercial basis to external parties.
Examples:

Property that is being constructed or developed for future use as

investment property.

Significant portion of property that is held to earn rentals or for

capital appreciation rather than to provide services, and
insignificant portion that is held for use in the production or
supply of goods or services or for administrative purposes.
The following are NOT considered investment
property:
a) Biological assets related to agricultural activity.
b) Mineral rights and mineral reserves such as oil, natural gas and
similar non-regenerative resources.
c) Property held for sale in the ordinary course of operations or in the
process of construction or development for such sale.
d) Property being constructed on behalf of third parties.
The following are NOT considered investment
property:
5) Owner-occupied property, including
a. Property held for future development and subsequent use as
owner-occupied property.
b. Property occupied by employees.
c. Owner-occupied property awaiting disposal.
6) Property that is leased to another entity under a finance lease.
The following are NOT considered investment
property:
7) Property held to provide a social service and which also generates
cash inflows.
8) Property held for strategic purposes.
9) Property held for use in the production or supply of goods or
services or for administrative purposes.
Initial Measurement

An investment property is initially measured at cost. The

measurement of cost depends on the mode of acquisition.

Modes of Acquisition
a. Cash purchase – The cost of a purchased IP consists of the purchase
price and all costs directly attributable to its acquisition, such as,
professional fees for legal services, property transfer taxes and other
transaction costs.
 Example
Entity A purchased a land for capital appreciation at a cash price of
P1,000,000. Professional fees and transfer taxes totaling to P80,000 were
also paid. The accounting entry to recognize the purchase shall be as
follows

Php 1,080,000

Php 1,080,000
b) Installment purchase – If payment for IP is deferred, its
cost is the cash price equivalent. The difference
between this amount and the total payments is
recognized as interest expense over the period of
credit.

c) Non-exchange transaction – Where an IP is acquired

through a non-exchange transaction, its cost shall be
measured at its fair value as at the date of acquisition.
Non-exchange transactions may be through transfer of
property at no cost (donation), or by the exercise of
powers of sequestration.
 Example
Entity A received an unconditional donation of a piece of
land with a fair value of P1,000,000. The accounting entry to
recognize the receipt of donated land shall be as follows:

Php 1,000,000

Php 1,000,000
d) Self-constructed Property. If an IP is self-constructed, whether by
contract or by administration, all costs related to the construction
shall be recognized as “Construction in Progress” while it is not
completed. Upon completion, these costs shall be transferred to
an “Investment Property” account when the criteria for
recognition of such are met
 Costs not included at
recognition:

a. Start-up costs unless they are necessary to bring the property

to the condition necessary for it to be capable of operating in the
manner intended by management;

b. Operating losses incurred before the investment property

achieves the planned level of occupancy; or

c. Abnormal amounts of wasted materials, labor or other

resources incurred in constructing or developing the property.
Subsequent Measurement
Investment properties are subsequently
measured at cost less accumulated
depreciation and accumulated impairment
losses (i.e., Cost Model).
Note: The fair value model is not allowed for government entities.
Transfers To or From Investment Property

• Transfers to or from investment property shall be

made only when there is a change in use, as evidenced
by the following:
a. Commencement of owner-occupation, for a transfer
from IP to owner-occupied property;
b. End of owner-occupation, for a transfer from owner-
occupied property to IP; or
Transfers To or From Investment Property

c. Commencement of an operating lease (on a

commercial basis) to another party, for a transfer from
inventories to IP.
d. Commencement of development with a view to sale,
for a transfer from IP to inventories;
Subsequent Measurement
• A government entity accounts for transfers to or
from investment property at cost. Accordingly,
no gain or loss shall arise from the transfer,
except when the transferred asset is impaired.
 Derecognition
• An investment property is
derecognized when it is
disposed or when it is
permanently withdrawn
from use and no future
economic benefits or
service potential is
expected from its disposal.
• The difference between
the net disposal proceeds
(if any) and the carrying
amount is recognized as
gain or loss in surplus or
deficit.
Impairment
• An asset is impaired if its carrying amount exceeds its recoverable
amount. The excess represents impairment loss which shall be
recognized in surplus or deficit.
• Recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use.
• Value in use is the present value of the estimated future cash
flows expected to be derived from the continuing use of an
asset and from its disposal at the end of its useful life.
 1. External sources of information:

i. During the period, an asset's market value has declined significantly

more than would be expected as a result of the passage of time or normal
use;

ii. Significant changes with an adverse effect on the entity have taken
place during the period, or will take place in the near future, in the
technological, market, economic, or legal environment in which the entity
operates, or in the market to which an asset is dedicated;

iii. Market interest rates or other market rates of return on investments

have increased during the period, and those increases are likely to affect
the discount rate used in calculating an asset's value in use and decrease
the asset's recoverable amount materially;
2. Internal sources of information:

i. Evidence is available of obsolescence or physical damage of an asset;

ii. Significant changes with an adverse effect on the entity have taken
place during the period, or are expected to take place in the near future, in
the extent to which, or the manner in which, an asset is used or is
expected to be used. These changes include the asset becoming idle,
plans to discontinue or restructure the operation to which an asset
belongs, plans to dispose of an asset before the previously expected date,
and reassessing the useful life of an asset as finite rather than indefinite;

iii. A decision to halt the construction of the asset before it is complete or

in a usable condition; and
iv. Evidence is available from internal reporting that indicates that the
economic performance of an asset is, or will be, worse than expected,
which includes the existence of:

(a) Cash flows for acquiring the asset, or subsequent cash needs for
operating or maintaining it, that are significantly higher than those
originally budgeted;

(b) Actual net cash flows or surplus or deficit flowing from the asset that
are significantly worse than those budgeted;

(c) A significant decline in budgeted net cash flows or surplus, or a

significant increase in budgeted loss, flowing from the asset; or

(d) Deficits or net cash outflows for the asset, when current period
amounts are aggregated with budgeted amounts for the future. (Par. 25
and 27, PPSAS 26)
Reversal of Impairment
The reversal of impairment shall not result to a carrying amount in excess
of the asset’s carrying amount had no impairment loss been recognized
in prior periods.
Compensation from third parties
Compensation from third parties for an investment property
that was impaired, lost or given up shall be recognized in
surplus or deficit when the compensation becomes
receivable.