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Module 5 Investment Property
Module 5 Investment Property
PROPERTY
By: Ms. Pauline R. Dela Cruz, CPA
Definition of Investment Property
• Investment property Land or a building or part of a building or both held by the owner or
by the lessee under a finance lease to earn rentals or for capital appreciation or both.
Examples of
investment property:
a. Property held for use in the production or supply of goods or services or for administrative purposes
(Property, plant and equipment)
b. Property held for sale in the ordinary course of business or in the process of construction of
development for such sale (Inventories)
c. Property being constructed or developed on behalf of third parties (Construction Contracts)
d. Owner-occupied property (Property, Plant and Equipment), including 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 and owner-occupied property awaiting disposal
e. Property leased to another entity under a finance lease.
Other Classification
Issues
One method must be adopted for all of an entity's investment property. Change is
permitted only if this results in a more appropriate presentation. PAS 40 notes that this is
highly unlikely for a change from a fair value model to a cost model.
Fair value model
1. Investment property is remeasured at fair value, which is the amount for which the property could be exchanged
between knowledgeable, willing parties in an arm's length transaction. Gains or losses arising from changes in
the fair value of investment property must be included in net profit or loss for the period in which it arises.
2. Fair value should reflect the actual market state and circumstances as of the end of the reporting period. The best
evidence of fair value is normally given by current prices on an active market for similar property in the same
location and condition and subject to similar lease and other contracts. In the absence of such information, the
entity may consider current prices for properties of a different nature or subject to different conditions, recent
prices on less active markets with adjustments to reflect changes in economic conditions, and discounted cash
flow projections based on reliable estimates of future cash flows.
3. There is a rebuttable presumption that the enterprise will be able to determine the fair value of an investment
property reliably on a continuing basis. However, if, in exceptional circumstances, an entity follows the fair value
model but at acquisition concludes that a property's fair value is not expected to be reliably measurable on a
continuing basis, the property is accounted for in accordance with the benchmark treatment under PAS 16,
Property, Plant and Equipment (cost less accumulated depreciation less accumulated impairment losses).
4. Where a property has previously been measured at fair value, it should continue to be measured at fair value until
disposal, even if comparable market transactions become less frequent or market prices become less readily
available.
Cost Model
After initial recognition, investment property is accounted for in accordance with the cost
model as set out in PAS 16, Property, Plant and Equipment – cost less accumulated
depreciation and less accumulated impairment losses.
Accounting for Transfers
Investment property under the Owner-occupied property or No change the carrying amount of the
cost model inventories property transferred
Disposals
The gain or loss on disposal is the difference between the net disposal
proceeds and the carrying amount of the asset and recognized in profit or
loss.
Gain on change in
December 31, 2016 53,000,000
December 31, 2017 60,000,000
2. Under the fair value model, what amount should be
fair value 5,000,000.00 recognized as gain from change in fair value in 2015?