Lecture 2

Investment Property
MFRS 140
Dr Mazni Abdullah, CA (M), CFiA (M), MMIM, PhD (Stirling), MBA (Malaya), B Acc (Malaya)
 MFRS 140
Defines Investment Property (Para 5):
property (land or a building / both) held to
earn rentals or capital appreciation or both,
rather than use in the business or for sale in
the ordinary course of business.
Includes:
Property held by the owner
Property held by the lessee under a Finance Lease
Excludes:
Owner-occupied property
Property occupied by employees of the owner
 MFRS 140
Owner-occupied property property held
(by the owner/by the lessee under a finance
lease) for use in the production / supply of
goods or services / for administrative
purposes.

Para 8- examples of Investment Property:

a) Land held for LT capital appreciation rather than for ST sale
in the ordinary course of business
b) Land held for a currently undetermined future use.
c) A building owned by the entity (or held by the entity under
a finance lease) and leased out under one or more
operating leases
d) A building that is vacant but is held to be leased out under
one or more operating leases
e) Property that is being constructed/ developed for future use
as IP.
How to treat the property if one portion is held to earn rentals and
another portion is held for use in the business?

MFRS 140 (Para 10):

a) If the portion could be sold separately, an entity should

account for the portion as investment property and as
PPE separately;

b) If the portions could not be sold separately, the property

qualifies as investment property only if an insignificant
portion of the property is held for use in business.
Judgement is needed (Para 14)
 MFRS 140, Para 11-12
If an entity provides ancillary services to the
occupants of a property:

Insignificant SIGNIFICANT
services :E.g. the SERVICES:
owner of the building E.g. owner-managed
provides security & hotel provides services
maintenance to guests
services to the Owner-occupied
lessees. property
Investment
Property
 Illustrations:
a) MM Bhd owns a piece of land, in which 20% is
used for its operating activities, the balance is
rented out.
b) MM Bhd used a building as a warehouse for its
inventory.
c) MM Bhd purchased a twenty storey building ,
and one floor is used for office administration
and the balance is rented out.
d) MM Bhd purchased a piece of land, where 20 %
of it is rented out and the balance is used as
the site of its transport facilities.
e) MM Bhd leased out the building to its subsidiary
 Recognition
MFRS 140 (Para 16): should be
recognised as an asset if and only if:
a)It is probable that future economic
benefits associated with the IP will flow to
the entity; and
b)The cost of the IP can be measured
reliabily.
 Measurement
MFRS140 (Para 20): upon initial recognition, it
shall be measured at cost. Transaction costs shall
be included in the initial measurement.
Subsequent to initial recognition: An entity should
choose the Cost model or FV model as its
accounting policy; and apply the chosen policy
consistently (para 30).
 Initial Cost of Investment
Property (IP)
1. Purchased IP: Purchase price + any
directly attributable expenditure
2. Self-constructed IP: cost of raw material,
direct labour and factory overheads that
can be allocated to the asset. Borrowing
Cost? MFRS123 (either expense or
capitalised as part of the assets cost)
 Cost Model
An entity should measure its IP in
accordance with MFRS 116 Property,
Plant and Equipment.
Assets should be carried at cost (or
revalued amount)
Assets are subjected to depreciation
Assets are subjected to impairment test
 Cost Model
Example:
On 1 January 20x1, MM Bhd purchased a factory
for investment purposes. The cost of factory was
RM 100 million and is expected to have useful life
of 50 years with no salvage value.
1 Jan 20x1
Dr Investment Property 100,000,000
Cr Bank 100,000,000
31 Dec 20x1
Dr Depreciation expense 20,000,000
Cr Accumulated depreciation 20,000,000
 FV Model
MFRS 140 (Para 38): The IP is measured at its
FV, reflecting the market conditions at the
balance sheet date.
Para 35: A gain or loss arising from a change in
the FV should be recognised in profit or loss for
the period in which it arises.
Depreciation?
Impairment test?
 FV Model
Example:
On 1 January 20x1, MM Bhd purchased a factory
for investment purposes. The cost of factory was
RM 100 million and is expected to have useful life
of 50 years with no salvage value. As at 31 Dec
20x1, the market value of building was RM105
million, but as at 31 Dec 20x2, it dropped to RM
95 million.
1 Jan 20x1
Dr Investment Property 100,000,000
Cr Bank 100,000,000
 FV Model
31 Dec 20x1
Dr Investment Property 5,000,000
Cr FV gain on investment property
5,000,000
(to record fv gain for the year)

31 Dec 20x2
Dr FV loss of investment property 10,000,000
Cr Investment property
10,000,000
(to record fv loss for the year)
 Transfer
ASSETS INVESTMENT PROPERTY
MFRS140 (para 57): transfer to or from
investment property should be made when and
only when there is a change in use, evidenced by:
a) Commencement of owner-occupation, for a transfer
from IP to OOP
b) Commencement of development with a view to sale,
for a transfer from IP to inventories
c) Commencement of operating lease to another party,
for a transfer from inventories to IP.
If the entity uses the COST MODEL, the transfers do not
change the carrying amount & the cost of that property for
measurement/disclosure purposes (Para 59).
 Transfer
(1) INVESTMENT PROPERTY (FV) PPE OR
INVENTORIES
Para 60 : FV of property at the date of transfer is
the deemed cost for subsequent accounting
under MFRS116 or MFRS102
(2)PPE INVESTMENT PROPERTY (FV)
Para 61 : the difference between the carrying
amount of PPE and its FV at the date of transfer
should be accounted for as a revaluation
surplus/deficit in accordance with MFRS116
(3) INVENTORIES INVESTMENT PROPERTY (FV)
Para 63: the difference between the carrying
amount of inventories and its FV at the date of
transfer should be recognised in the profit or loss.
 Derecognition
Para 66: an IP should be derecognised:
1. On disposal
2. When the property is permanently withdrawn from use and no future
economic benefits are expected from its disposal.

Para 69 gain/loss arise from its disposal should

be recognised in profit/loss.