IAS – 40 INVESTMENT PROPERTY

BY

Adeel Saleem
SCOPE

Para 2 of the standard sets the scope as

This Standard shall be applied in the recognition, measurement

and disclosure of investment property.

Including
 measurement in a lessee’s financial statements of investment
property interests held under a finance lease and
 measurement in a lessor’s financial statements of investment
property provided to a lessee under an operating lease.
INVESTMENT PROPERTY - DEFINED

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, rather than for:
 use in the production or supply of goods or services or for

administrative purposes; or
 sale in the ordinary course of business
Examples

 land held for long-term capital appreciation

 land held for a currently undetermined future use

 a building owned by the entity and leased out under one or

more operating leases.

 a building that is vacant but is held to be leased out under

one or more operating leases.
RECOGNITION CRITERIA

Investment property shall be recognised as an asset when, and

only when:
 it is probable that the future economic benefits that are
associated with the investment property will flow to the entity;
and

 the cost of the investment property can be measured reliably.

Similar requirement as specified in IAS - 16

MEASUREMENT AT RECOGNITION
An investment property shall be measured initially at its cost. Transaction costs shall be included in the initial
measurement.
For Purchased Property:
For Self-Constructed Property:
For Finance Leased Asset:
Cost includes purchase price and
directly attributable costs
Cost is the cost at the date when the
development or construction is complete
Cost is the lower of the fair value of the
property and the present value of the
minimum lease payments
 For MEASUREMENT AFTER RECOGNITION
entity may use

COST MODEL FAIR VALUE MODEL

COST MODEL

An entity using shall measure ALL of its investment property in accordance with
 IAS 16 Property, Plant & Equipment requirements for that model, or

 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for
investment properties that meet the criteria to be classified as held for sale

EXCEPT
 Investment property under operating lease shall be carried at the fair value
FAIR VALUE MODEL
An entity that chooses the fair value model shall measure ALL of its investment
property at fair value EXCEPT where the fair value of the investment property is
not reliably determinable on a continuing basis.

 Investment property under operating lease shall be recognised at the fair value

 A gain or loss arising from a change in the fair value of investment property shall
be recognised in profit or loss for the period in which it arises

 the fair value of investment property shall reflect market conditions at the
balance sheet date.
TRANSFERS
Transfers to, or from, investment property shall be made when, and only when,
there is a change in use, evidenced by:
 commencement of owner-occupation, for a transfer from investment property
to owner-occupied property;

 commencement of development with a view to sale, for a transfer from

investment property to inventories;

 end of owner-occupation, for a transfer from owner-occupied property to

investment property;

 commencement of an operating lease to another party, for a transfer from

inventories to investment property; or

 end of construction or development, for a transfer from property in the course

of construction or development to investment property.
DEEMED COST FOR TRANSFERS
 For a transfer from investment property carried at fair value to owner-
occupied property or inventories, the property’s deemed cost for subsequent
accounting shall be its FAIR VALUE AT THE DATE OF CHANGE IN USE.
 For owner-occupied property that becomes an investment property will be
CARRIED AT FAIR VALUE, the entity shall treat any difference at that date
of transfer between the carrying amount of the property and its fair value as a
revaluation surplus or loss in accordance with IAS 16

 For a transfer from inventories to investment property that WILL BE

CARRIED AT FAIR VALUE, any difference between the fair value of the
property at that date and its previous carrying amount shall be recognised in
profit or loss.

 When an entity completes the construction or development of a self-

constructed investment property that WILL BE CARRIED AT FAIR VALUE,
any difference between the fair value of the property at that date and its
previous carrying amount shall be recognised in profit or loss.
DISPOSAL

An investment property shall be derecognised

 on disposal, or;
 when the investment property is permanently withdrawn from use, or;
 no future economic benefits are expected from its disposal

 Gains or losses arising from the retirement or disposal of investment

property shall be the DIFFERENCE between the NET DISPOSAL
PROCEEDS and the CARRYING AMOUNT of the asset and shall be
recognised in profit or loss

 Compensation from third parties for investment property that was impaired,
lost or given up shall be recognised in profit or loss when the compensation
becomes receivable