INVESTMENT

PROPERTY
gilleane bajarin
PAS 40
Investment Property is defined as property
(land or building or part of a building or both)
held by an owner or by a lessee under a finance
lease to earn rentals or for capital appreciation or
both.

The property held by an owner or by the lessee under a

finance lease for use in the production or supply of g/s,
or for administrative purposes is known as owner-
occupied property
Investment Property
Land held for long term capital appreciation

Land held for a currently undetermined use.

Building owned by the entity, or held by the entity under
a finance lease, and leased out under an operating lease.
Building that is vacant but is held to be leased out
under an operating lease.
Property that is being constructed or developed for
future use as investment property.
NOT an Investment Property
Property intended for sale in the ordinary course of
business or in the process of construction or
development for such sale.

Owner-occupied property, 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,
whether or not the employees pay rent at market rate
and owner-occupied property awaiting disposal

Property that is leased to another entity under a

finance lease.
Other Classification Issues
PARTAIL OWN USE ANCILLARY SERVICES

Can be sold or leased out a. Investment property- if

separately – accounted for services are relatively
separately insignificant component of
the arrangement

Can’t be sold or leased out b. Owner-occupied property-

separately – Investment if the ancillary services
property only if the owner provided are a more significant
occupied portion is insignificant component of the arrangement
Other Classification Issues
Intracompany Rentals
Consolidated Financial
Statements
From the perspective of the
group as a whole, the
property is treated as owner-
occupied property.
Separate Financial
Statements
From the perspective of the
individual entity that owns
it, from the property leased to
another subsidiary or its
parent is considered an
investment property.
 Initial Recognition

a. Probable that the future economic benefits that ae

associated with the property will flow to the enterprise

b. The cost of the property can be reliably measured

 Initial Measurement
Measured initially at its cost, including transaction cost

Cost of Purchased IP- purchase price and any

attributable expenditures.

Cost of Self-constructed IP- total cost incurred at

each reporting date or at the date when the
construction or development is complete, whichever
is earlier.
Investment held under a finance lease- fair value of the
property or present value of the minimum lease
payments, whichever is lower.
 Initial Measurement
Acquisition through non-monetary exchange (or a
combination of monetary and non-monetary exchange)

Order of priority

a. FV of asset given up plus cash payment.

b. FV of asset received minus cash received.
c. BV of asset given up plus cash payment.

Take note that same principle in PAS 16 is used when an investment is acquired in an
exchange transaction.
 Subsequent Measurement
Cost Model Fair Value Model

Measure all IP at fair

The investment property
value. A gain or loss
is carried at cost less any
arising from a change
accumulated
in FV shall be
depreciation and any
recognized in profit or
accumulated impairment
losses. loss for the period
which it arises.
 Inability to Determine FV Reliably
1. At Initial Recognition

If IP under construction- It shall measure

IP at cost until either its fair value becomes
reliably determinable or construction is
complete.

Other than IP under construction- Measure

IP using cost model under PAS 16. The
residual value of the IP shall be assumed to
be zero and entity shall apply cost model
until disposal of IP.
 Inability to Determine FV Reliably
2. Subsequent to initial recognition

It shall continue to measure the property at FV until

disposal even if comparable market transactions
become less frequent or market prices becomes less
readily available.
 Cost model
Jan 1, 2016
On Jan 1, 2016, ABC Co Investment Property 3,000,000
purchased building at a
cost of P3,000,000. On Cash 3,000,000
the same date, the
building was leased out Dec 31, 2016
under an operating lease.
The company’s policy Depreciation Expense 150,000
regarding depreciation Acc. Dep. 150,000
asset is to depreciate
using straight line method
of depreciation over an Dec 31, 2017
estimated useful life of 20 Depreciation Expense 150,000
years. The fair value of Acc. Dep. 150,000
the building from Dec 31,
2016 to 2018 is as follows:
P3,100,000 , P2,450,000 , Dec 31, 2018
P2,990,000. Depreciation Expense 150,000
Acc. Dep. 150,000
 FV model
Jan 1, 2016
On Jan 1, 2016, ABC Co Investment Property 3,000,000
purchased building at a
cost of P3,000,000. On
Cash 3,000,000
the same date, the
building was leased out Dec 31, 2016
under an operating lease. Investment Property 100,000
The company’s policy
regarding depreciation Unrealized gain- change in FV 100,000
asset is to depreciate
using straight line method Dec 31, 2017
of depreciation over an
Unrealized loss- change in FV 650,000
estimated useful life of 20
years. The fair value of Investment Property 650,000
the building from Dec 31,
2016 to 2018 is as follows: Dec 31, 2018
P3,100,000 , P2,450,000 ,
Investment Property 540,000
P2,990,000.
Unrealized gain- change in FV 540,000
 Accounting for Transfers
New Carrying Gain or loss on
Amount transfer
Transfer to and from
Previous carrying No gain or loss on
When an IP under construction is completed
investment property using
amount transfer is recognized.
cost model
andfrom
Transfer to investment
be carried at fair value, the difference
Diff bet. FV at date of
Fair value date of
between
property carriedfair
value model
at fairvalue and carrying amount
transfer
transfer andshall
FV on be
previous reporting period
included
Transfers to Investment in will
Property that profit or using
be carried loss.Fair Value Model:
No gain or loss is
- From owner-occupied Fair value date of recognized. Account the
property transfer change using PAS 16 up
to date of transfer.
FV at date of transfer
Fair value date of
- From inventories less AC of previous
transfer
reporting date (LCNRV)
 DERECOGNITION
1. Disposed
2. Permanently withdrawn from use
3. No future economic benefits are expected
form its disposal
Net disposal proceeds
- Carrying amount of asset
Gain or losses

Gains and losses are recognized at profit or loss in the period of the
retirement or disposal
Example
On June 30, 2018, XYZ Co sold its
investment property for P6,000,000. The
company paid P200,000 as a transaction cost.
The estimated useful life was 10 years

1. Compute for gain or loss on derecognition using:

a. Cost model
b. Fair Value model assuming FV on June 30, 2018 was
P5,200,000.
2. Prepare all necessary entries
COST MODEL
Consideration received P 6,000,000
Less: transaction cost 200,000
Net Selling Price 5,800,000
Less: Carrying amount
Cost P 6,000,000
Acc. Dep 2,400,000 3,600,000
Gain on disposal P 2,200,000

Cash 5,800,000
Accumulated Depreciation 2,400,000
Investment Property 6,000,000
Gain on derecognition 2,200,000
FAIR VALUE MODEL
Consideration received P 6,000,000
Less: transaction cost 200,000
Net Selling Price 5,800,000
Less: Carrying amount 5,200,000
Gain on derecognition 600,000

Cash 5,800,000
Investment Property 5,200,000
Gain on derecognition 600,000