Investment-Property

1. TOPIC: INVESTMENT PROPERTY

2. Investment Property applies to the accounting 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 cost model or fair value
model, with changes in the fair value under the fair value
model being recognized in profit or loss.

3. 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.

4.  Land held for long- term capital appreciation
 Land held for a currently 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

5. 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
occupancy.

6. IAS 40 permits entities to choose between;
• 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 more appropriate presentation.

7.  Investment property is
remeasured at fair value, which is
the price that would be received
to sell an asset or paid to transfer
a liability in an orderly transaction
between market participants at
the measurement date.
 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.
 Fair value should reflect the actual
market state and circumstances as of
the balance sheet date. 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.
 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.

8.  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:
 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.

9.  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:
 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

10.  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
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
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
recognized in profit or loss
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 recognized in profit or loss.