INVESTMENT

PROPERTY

Chapter 22
Intermediate Accounting
by: Valix, Peralta, Valix

Rosario M. Perez
 Definition
Property (land or building or part of a
building or both) held by an owner or by
the lessee under finance lease to earn
rentals or for capital appreciation or
both.
• PURPOSE:
to earn rentals or for capital
appreciation or both
• NOT HELD:
For use in production or for sale in
the ordinary course of business
 EXAMPLES
(Properties held by owner)

• Land held for long-term capital

appreciation
• Land held for currently undetermined use
• Building owned under operating lease
• Building that is vacant but is held to be
leased out under operating lease
• Property that is being constructed or
developed for future use as investment
property
 Items not considered as
investment property

• Owner-occupied property (OOP) – use in

production or supply of goods or services
or for administrative purposes
• Property held for future use as OOP.
• Property held for future development and
subsequent use as OOP
• Property occupied by employees
• OOP awaiting disposal
 Items not considered as
investment property

• Property held for sale in the ordinary

course of business or in the process of
construction or development for such sale
( Inventory) Example: Camella/Real
Estate
• Property being constructed or developed
on behalf of third party
• Property that is leased to another entity
under a finance lease
Investment Property held
by lessee
• Under Finance Lease – “the right to use” the asset
which includes:
1. The present value of the lease payment
2. Lease payment made to the lessor at or before
the commencement date less any lease
incentive
3. Initial Direct cost incurred by the lessee
4. Estimate of cost of dismantling and restoring the
underlying asset for which the lessee ha a
present obligation.
 Partly investment and
partly OOP
• If can be sold or leased out separately – should be
reported separately as OOP (portion being
occupied) and investment property – leased out
• If cannot be sold separately and the portion held is
insignificant – Investment property
• If the owner provides insignificant ancilliary
services to the occupants such as security and
maintenance – Investment Property
• If the owner provides significant services – OOP
(hotels/Air bnb)
 Property leased to an
affiliate
• If the reporting is as individual entity –
Investment Property
• If reporting is as group or consolidated
financial statement - OOP
 RECOGNITION

• It is probable that the future economic

benefits that are associated with the
investment property shall flow to the entity.
• The cost of the investment property can be
measured reliably
 Initial Measurement

At Cost
Cost of purchase and any attributable expenditures
( professional fees for legal, property transfer taxes and other
transaction costs)
Costs excluded
1. Start up costs, unless necessary to bring the property to the
condition necessary for its intended use
2. Operating losses incurred before the IP achieves the
planned level of occupancy
3. Abnormal amount of wasted material, labor or other
resources incurred in constructing or developing the
property.
 Subsequent
Measurement
• Option of the entity
1. Fair Value Model – IP is carried at fair
value
(Gain from Change in Fair Value)
2. Cost model – IP is carried at cost less
any accumulated depreciation and
accumulated impairment loss
 Fair Value of Investment
Property
Fair value – is the price that would be received to
sell an asset in an orderly transaction between
market participants (buyer and seller) at the
measurement date.
• Equipment such as lift (elevator) and aircon is
generally included in the fair value of IP.
• If furnished, value of furniture should also be
included.
• Excludes prepaid or accrued operating lease
income
Inability to determine FV
reliably
Cost Method will be used and
residual value shall be assumed
to be zero.
Consistency in using fair value
method
 Transfers of Investment
Property
CHANGE OF USE
IP – OOP
Commencement of owner occupation
IP – INVENTORY
Development with a view to sale
OOP – IP
End of owner-occupation
Inception of an operating lease to another
entity
 MEASUREMENT OF
TRANSFERS
• If the entity uses Cost model, transfer shall be
made at carrying amount
• If IP is carried at FV, transfer shall be made at FV
• If OOP (cost) to IP(FV) – difference will be
accounted as revaluation of property, plant and
equipment
• If inventory (cost) to IP(FV) – difference to profit
and loss
• If IP under construction is completed (FV) –
difference to profit and loss
 Derecognition

• On disposal
• If IP is permanently withdrawn
from use
• When no future economic
benefits are expected from IP
 DISCLOSURES

General Disclosures
1. Cost Model or Fair Value Model
2. Amount of rental with related
expense
3. Restrictions on the investment
property
4. Contractual obligations to purchase
or construct investment propery
 DISCLOSURES

• Fair Value Model

1. Detailed reconciliation of beginning and
ending carrying amount
2. Method of determining Fair Value
3. Net gains or losses
4. Significant fixtures separately recognized
 DISCLOSURES

• Cost Model
1. Depreciation Method, rate and useful life
2. Detailed reconciliation – cost and
accumulated depreciation
3. Fair value
 CASH SURRENDER
VALUE
• The cash surrender value is the sum of
money an insurance company pays to a
policyholder or an annuity contract owner
in the event that their policy is voluntarily
terminated before its maturity or an
insured event occurs. 
 CASH SURRENDER
VALUE
• If beneficiary is the officer insured or any
person other than the entity, premium is
simply charged to insurance expense
• If beneficiary is entity itself, cash
surrender value and cash loan should be
accounted.
 CASH SURRENDER
VALUE
• Requisites:
1. Life policy
2. Premiums for 3 years must have been
paid
3. It should be surrendered at the end of 3rd
year or anytime thereafter.
Cash surrender value is classified as non
current investment
 CASH SURRENDER
VALUE
• Loan value is the amount can be borrowed
from the insurance firm with the cash
surrender value as collateral security
• It is accounted as an ordinary obligation.
 CASH SURRENDER
VALUE
• ACCOUNTING PROCEDURES
1. Payment of the insurance premium
Life insurance expense
Cash
2. Adjustment
Prepaid life insurance
Life insurance expense
 CASH SURRENDER
VALUE
3. Dividends received
Cash
Life insurance expense
4. Initial recognition of cash surrender value
at the end of third year.
Cash surrender value
Life insurance expense (current year)
Retained earnings (prior years)
 CASH SURRENDER
VALUE
5. Subsequent Cash Surrender Value received
Cash Surrender Value
Life insurance Expense
6. Receipt of proceeds
Cash
Cash surrender value
Life insurance expense
Gain on life insurance settlement
 ASSIGNMENT

• Problems 22-1 and 22-12

• Problems 22-2; 22-4; 22-5; 22-6
• You may opt to answer all the problems for
you to test your understanding of this
chapter.
• God bless you all!!!