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IAS 40 Investment Property http://www.iasplus.com/en/standards/ias/ias40

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IAS 37 Provisions, Contingent Liabilities and Contingent Assets
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IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture

IAS 40 Investment Property

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Overview
IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both).
Investment properties are initially measured at cost and, with some exceptions. may be subsequently measured using a cost model or fair value model, with
changes in the fair value under the fair value model being recognised in profit or loss.

IAS 40 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.

History of IAS 40
October 1984 Exposure Draft E26 Accounting for Investments
March 1986 IAS 25 Accounting for Investments
1 January 1987 Effective date of IAS 25
December 1999 Exposure Draft E64 Investment Property
April 2000 IAS 40 Investment Property superseded those portions of IAS 25 that addressed investment property and withdrew IAS 25
1 January 2001 Effective date of IAS 40 (2000)
18 December 2003 Revised version of IAS 40 issued by the IASB
1 January 2005 Effective date of IAS 40 (2003)

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IAS 40 amended for Annual Improvements to IFRSs 2007 to bring property under construction or development for future use as an
22 May 2008
investment property within its scope.
1 January 2009 Effective date of the May 2008 revisions to IAS 40

Related Interpretations
None

Summary of IAS 40
Definition of investment property
Investment property is 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. [IAS 40.5]

Examples of investment property: [IAS 40.8]

land held for long-term capital appreciation

land held for undetermined future use
building leased out under an operating lease
vacant building held to be leased out under an operating lease
property that is being constructed or developed for future use as investment property

The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and 40.9]

property held for use in the production or supply of goods or services or for administrative purposes
property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories)
property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts)
owner-occupied property (IAS 16 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
property leased to another entity under a finance lease

In May 2008, as part of its Annual Improvements Project, the IASB expanded the scope of IAS 40 to include property under construction or development for
future use as an investment property. Such property previously fell within the scope of IAS 16.

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Other classification issues

Property held under an operating lease. A property interest that is held by a lessee under an operating lease may be classified and accounted for as
investment property provided that: [IAS 40.6]

the rest of the definition of investment property is met

the operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases
the lessee uses the fair value model set out in this Standard for the asset recognised

An entity may make the foregoing classification on a property-by-property basis.

Partial own use. If the owner uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or
leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased
out separately, the property is investment property only if the owner-occupied portion is insignificant. [IAS 40.10]

Ancillary services. If the entity provides ancillary services to the occupants of a property held by the entity, the appropriateness of classification as
investment property is determined by the significance of the services provided. If those services are a relatively insignificant component of the arrangement
as a whole (for instance, the building owner supplies security and maintenance services to the lessees), then the entity may treat the property as investment
property. Where the services provided are more significant (such as in the case of an owner-managed hotel), the property should be classified as owner-
occupied. [IAS 40.13]

Intracompany rentals. Property rented to a parent, subsidiary, or fellow subsidiary is not investment property in consolidated financial statements that
include both the lessor and the lessee, because the property is owner-occupied from the perspective of the group. However, such property could qualify as
investment property in the separate financial statements of the lessor, if the definition of investment property is otherwise met. [IAS 40.15]

Recognition
Investment property should be recognised as an asset when it is probable that the future economic benefits that are associated with the property will flow to
the entity, and the cost of the property can be reliably measured. [IAS 40.16]

Initial measurement
Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating
losses incurred before the investment property achieves the planned level of occupancy. [IAS 40.20 and 40.23]

Measurement subsequent to initial recognition

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IAS 40 permits entities to choose between: [IAS 40.30]

a fair value model, and

a cost model.

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. IAS 40
notes that this is highly unlikely for a change from a fair value model to a cost model.

Fair value model

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. [IAS 40.5] 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. [IAS 40.35]

Fair value should reflect the actual market state and circumstances as of the balance sheet date. [IAS 40.38] 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. [IAS 40.45] 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. [IAS 40.46]

There is a rebuttable presumption that the entity will be able to determine the fair value of an investment property reliably on a continuing basis. However:
[IAS 40.53]

If an entity determines that the fair value of an investment property under construction is not reliably determinable but expects the fair value of the
property to be reliably determinable when construction is complete, it measures that investment property under construction at cost until either its fair
value becomes reliably determinable or construction is completed.
If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably determinable
on a continuing basis, the entity shall measure that investment property using the cost model in IAS 16. The residual value of the investment property
shall be assumed to be zero. The entity shall apply IAS 16 until disposal of the investment property.

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. [IAS 40.55]

Cost model

After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16 Property, Plant and Equipment cost
less accumulated depreciation and less accumulated impairment losses. [IAS 40.56]

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Transfers to or from investment property classification

Transfers to, or from, investment property should only be made when there is a change in use, evidenced by one or more of the following: [IAS 40.57]

commencement of owner-occupation (transfer from investment property to owner-occupied property)

commencement of development with a view to sale (transfer from investment property to inventories)
end of owner-occupation (transfer from owner-occupied property to investment property)
commencement of an operating lease to another party (transfer from inventories to investment property)
end of construction or development (transfer from property in the course of construction/development to investment property

When an entity decides to sell an investment property without development, the property is not reclassified as investment property but is dealt with as
investment property until it is disposed of. [IAS 40.58]

The following rules apply for accounting for transfers between categories:

for a transfer from investment property carried at fair value to owner-occupied property or inventories, the fair value at the change of use is the 'cost' of
the property under its new classification [IAS 40.60]
for a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be applied up to the date of reclassification.
Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16 [IAS 40.61]
for a transfer from inventories to investment property at fair value, any difference between the fair value at the date of transfer and it previous carrying
amount should be recognised in profit or loss [IAS 40.63]
when an entity completes construction/development of an investment property that will be carried at fair value, any difference between the fair value
at the date of transfer and the previous carrying amount should be recognised in profit or loss. [IAS 40.65]

When an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and
they do not change the cost of the property for measurement or disclosure purposes.

Disposal
An investment property should be derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic
benefits are expected from its disposal. The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and the carrying
amount of the asset and should be recognised as income or expense in the income statement. [IAS 40.66 and 40.69] Compensation from third parties is
recognised when it becomes receivable. [IAS 40.72]

Disclosure
Both Fair Value Model and Cost Model [IAS 40.75]

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whether the fair value or the cost model is used

if the fair value model is used, whether property interests held under operating leases are classified and accounted for as investment property
if classification is difficult, the criteria to distinguish investment property from owner-occupied property and from property held for sale
the methods and significant assumptions applied in determining the fair value of investment property
the extent to which the fair value of investment property is based on a valuation by a qualified independent valuer; if there has been no such valuation,
that fact must be disclosed
the amounts recognised in profit or loss for:
rental income from investment property
direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period
direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the
period
the cumulative change in fair value recognised in profit or loss on a sale from a pool of assets in which the cost model is used into a pool in which
the fair value model is used
restrictions on the realisability of investment property or the remittance of income and proceeds of disposal
contractual obligations to purchase, construct, or develop investment property or for repairs, maintenance or enhancements

Additional Disclosures for the Fair Value Model [IAS 40.76]

a reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing additions, disposals, fair value
adjustments, net foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes [IAS 40.76]
significant adjustments to an outside valuation (if any) [IAS 40.77]
if an entity that otherwise uses the fair value model measures an item of investment property using the cost model, certain additional disclosures are
required [IAS 40.78]

Additional Disclosures for the Cost Model [IAS 40.79]

the depreciation methods used

the useful lives or the depreciation rates used
the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period
a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing additions, disposals, depreciation,
impairment recognised or reversed, foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes
the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably, additional disclosures are
required, including, if possible, the range of estimates within which fair value is highly likely to lie

Gosto 4 8

Quick links

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Deloitte e-learning on IAS 40

IAS 40 Items not added to the agenda

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Jan 05, 2011

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