PAS 40 INVESTMENT PROPERTY C21

Investment property

is defined as property (land or building o part of a building or both) held by an owner or by the lesse;

under a finance lease to earn rentals or for capital appreciation

or both.

a. To earn rentals

b. For capital appreciation

In other.words, only land and building can qualify as investment

property and held:

• An equipment or any movable property cannot qualify as

  investment property. !

  An-investment property is not held:

  a. For use in the production or supply of goods or services or

  for administrative purposes.

  b. For sale in the ordinary course of business.

  The property held by an owner for use in the production or

  supply of goods or services, or for administrative

a. Land held for long-term capital appreciation.

b. Land held for a currently undetermined use.

For example, if an entity has not determined that it will use

the land either as owner-occupied property or for

short-term sale in the ordinary course of businéss, the land

is considered to be held for capital appreciation and

therefore investment property.

c. Building owned by the reporting entity leased out under an |

operating lease.

d. Building that is vacant but is held to be leased out under an

operating lease.

e. Property that is being constructed or developed for _fut.ure |

use as investment property.

Examples of investment property

Cerlain properties may-include a portion that is held to earn

rentals or for appreciation and another portion that is held for manufacturing or administrative purposes.

If these portions could be sold or leased out separately, an entity

shall account the portions separately as investment property

and owner-occupied property.

If the portions could not be sold separately, the property is

investment property if only an insignificant portion is held for

manufacturing or administrative purposes.

investment property

ancilliary services are provided by the entity to the

occupants of the property and these services are a relatively

insignificant component of the arrangement, the property is

treated as __.

• An example would be where the owner of an office building

provides security and maintenance services to the lessees. The

building being leased out as offices is investment property.

However, if the services provided are a more significant

component of the arrangement, the property is treated as

" owner-occupied property.

For example, if an entity owns and managés a hotel, services

provided to guests are a significant component of the

arrangement as a whole.

Therefore, the owner-managed hotel is treated as

owner-occupied property, rather than investment property.

investment property

ancilliary services are provided by the entity to the

occupants of the property and these services are a relatively

insignificant component of the arrangement, the property is

treated as __.

individual

Property leased to an affiliate

From the perspective of the __ entity that owns it,

the property leased to another subsidiary or.its parent is

considered an investment property.

However, from the perspective of the group as a whole and for

purposes of consolidated financial statements, the property is

treated as owner-occupied property.

Fair value of investment property

___is the price that would be received to sell

an asget in an orderly transaction between market participants

at the measurement date.

the price in the principal marked used to measure fair value

shall not be adjusted for transaction cost.

Equipient such as lift or air-conditioning is often an integral

part of a building and is generolly included in the fair value

of the inveatment property.

It an office is leased on o furnished basis, the fair value of the

office generally includes the fair value of the furniture becavas

the rental income relates to the furnished office.

• The fair value of investment property excludes prepaid op

  accrued operating lease income

Inability to determine fair value reliably

• In exceptional cases, when an entity first acquires an

investment property, or when an existing property becomes

investment property because there has been a change of use

there may be clear evidence that the foir value of the investmens

property cannot be determined reliably on o continuing basia,

• Under such exceptional cases, PAS 40, paragraph 53, mandates

that the entity shall measure such investment property using

the cost method until the disposal of the investment property.

• Moreover, under such exceptional cases only, the residual value

of the investment property shall be assumed to be zero.

PAS 40, paragraph 54, states that an entity that uses the fair

value model shall continue to measure other investment

property at fair value, notwithstanding the fact that one

investment property is carried using the cost model due to

exceptional cases.

Initial measurement of Investment property

An investment property shall be measured initially at cost

including transaction cost.

The cost of a pufichased investment property comprises the

purchase price and any directly attributable expenditure.

Directly attributable expenditure includes professional legal

gervices, property transfer taxes and other transaction cost.

Costs excluded from cost of investment property

a. Start up cost

b. Operating loss incurred before occupancy

¢. Abnormal amount of wasted material, labor or other resources

incurred in constructing or developing the property

a. Fair value model

b. Cost model

Subsequent measurement of investment property

: An entity shall choose either of the following models as the

accounting policy and shall apply that policy to all of the

investment property:

fair value

Suggestively, the investment property is carried at __,

If the entity decides to measure the investment property under

the fair value model, the changes in fair value from year to

year are recognized and presented in the income statement.

No depreciation is recorded for the investment property.

Cost model

• If the entity decides to measure the investment property

under the cost model, the asset shall be carried at cost less

accumulated deprecmtlon and any accumulated 1mpau-ment

loss.

• Fluctuations in the fair value of the investment property

from year to year are not recognized.

instead , the annual depreciation and any impairment of the

investment property are recognized and presented in the

income statement.

Derecognition

___of investment property

An investment property shall be derecognized:

a. On disposal.

b. When the investment property is permanently withdrawn

from use.

¢. When no future economic benefits are expected from the

mvestment property.

Disposal

of investment property

• Gain or loss from ghsposal of investment property shall be

determined as the difference between the net disposal proceeds

and the carrying amount of the asset.

Transfers of investment property

shall made only

when there is a change of use evidenced by:

1. Commencement of owner occupation ~ transfer from

investment property to owner-occupied property.

2. Commencement of development with a view to sale —

transfer from investment property to inventory.

3. End of owner occupation - transfer from owner-cctupied

property to investment property.

4. Commencement of an operating lease to anather entity «

transfer from owner-occupied property to investment

property.

1. carrying amount. 3. revaluation

Measurement of transfers

1. When the entity uses the cost model, transfers between

investment property, owner-occupied property and

inventory shall be made at __

2. A transfer from investment property camed at fair value

to owner-occupied property o inventory shall be aceountad

for at fair value which becomes the deemed cost for

subsequent accounting.

3. If owner-occupied property is transferred to investment

property that is to be carried at fair value, the difference

between the fair value and the carrying amount of the property shall be accounted for as __ of property,

plant and equipment.

4. If an inventory is transferred to investment property that

is to be carried at fair value, the remeasurement to fair

value shall be recognized and presented in the income

statement.

5. When an investment property under construction is

completed and to be carried at fair value, the difference between fair value and carrying amount shall be recognized

and presented in the income statement.