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FAC 3702 > 2. Investment Property > Flashcards

2. Investment Property Flashcards

1
Q

What is investment property?

A

Property held for the purpose to earn rentals or capital appreciation.

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2
Q

What is investment property NOT used for?

A
  1. Used in production

2. Sale in ordinary course of business

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3
Q

What is owner occupied property?

A

Property held for use in production

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4
Q

Some examples of investment property?

A
  1. Land held for capital appreciation
  2. Land held with currently undetermined use
  3. Building leased out under operating lease
  4. Vacant building leased under operating lease
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5
Q

Some examples NOT classified as investment property?

A
  1. Property that is inventories
  2. Property being developed
  3. Owner occupied
  4. Property being developed (even if future use is for investment)
  5. Property leased under finance lease
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6
Q

If property is not separable, can you account it for investment property?

A

Only if owner occupied portion is insignificant

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7
Q

What is the recognition criteria for investment property?

A
  1. Probable future economic benefits

2. Cost can be measured reliably

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8
Q

How is investment property measured initially?

A

At its cost including initial transactions

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9
Q

What is the cost value if it is self-constructed investment property?

A

Cost at date of completion

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10
Q

How is the value measured when exchange of investment property?

A

Same as PPE

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11
Q

What are the two models that investment property can be measured?

A
  1. Cost model
  2. Fair value model
    (rather use fair value model)
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12
Q

What is the cost model?

A

Property carried at cost less accumulated depreciation and accumulated impairment losses.

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13
Q

What is the fair value model?

A

All investment property valued at fair value

No depreciation is accounted for

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14
Q

Where are gains and losses on recognized for investment property?

A

Profit and loss section of statement of profit and loss and other comprehensive income

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15
Q

What is the journal entry when there is an increase in value for investment property?

A

Dr. Investment property
Cr. Fair value profit

Reverse for decrease

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16
Q

What is a transfer regarding investment property?

A

Where there is a complete change in use

E.g. From investment to owner occupied

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17
Q

What is the journal entry when there is a transfers or investment property to owner occupied

A

Dr. PPE

Cr. Investment property FV

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18
Q

What MUST be remembered about the BEFORE transfers!?

A

Always do fair value adjustment before transfer

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19
Q

What is the journal entry when you commence development with a view to sell?

A

Dr. Inventories

Cr. Investment property

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20
Q

What is the journal entry at the end of owner occupation?

A

Dr. Investment property
Dr. Accumulated depreciation
Cr. Property at cost
Cr. Revaluation surplus

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21
Q

When is investment property derecognized?

A
  1. Permanently withdrawn from use

2. No future economic benefits

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22
Q

How else can the disposal of property be achieved?

A

By entering into sale through finance lease.

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23
Q

Where are gains and losses as a result of disposal recognized for investment property?

A

Profit or loss

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24
Q

Does SARS distinguish between owner-occupied properties and investment properties?

A

No

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25
Q

What is the deferred tax on investment properties (land)?

A

28% x 66.6%

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26
Q

What is deferred tax on investment properties (admin building)

A
  1. No intention to sell: 28%

2. Intention to sell: 28% x 66.6%

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27
Q

Test

A

Test

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28
Q

What are some examples of property that is investment property

A

1.

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29
Q

What is the best way to see if property is PPE or IP?

A

Intention

30
Q

What is the definition of owner occupied property?

A

Use in production or supply of goods OR administration purposes

31
Q

What IAS is investment property?

A

IAS40

32
Q

What is investment property?

A
  1. Earn rentals

2. Capital appreciation

33
Q

What is investment property NOT used for?

A
  1. Production/supply services

2. Held for sale

34
Q

What are examples of investment property? X5

A
  1. Held for long-term capital appreciation
  2. Currently undetermined future use
  3. Leased out by OPERATING lease
  4. Vacant building with intention to lease under operating lease
  5. Being constructed with intention for investment property
35
Q

What are examples of owner occupied property?

A
  1. Acquired with view of subsequent disposal (held for sale)
  2. Constructed on behalf of third party
  3. Owner occupied
  4. Occupied by employee
36
Q

What is the first thing that must be considered where a property is in dual use?

A

Can it be sold separately?

37
Q

If the building cannot be sold separately, what is done?

A

Consider the PORTION in use, which has dominant

38
Q

When can a duel sued building be considered investment property?

A

Only if an INSIGNIFICANT portion if the building is owner occupied.
Around 10% or less.

39
Q

What if parent or subsidiary leases to fellow subsidiary?

A

The lessor will only be able to record it as investment property.

40
Q

Initial measurement?

A

Cost

41
Q

What is included in cost?

A
  1. Purchase price

2. Transaction fees = professional fees and legal fees

42
Q

What is done with VAT of cost?

A

VAT MUST be excluded from the cost (cannot be included)

43
Q

What amount will be included in cost for self construction / development / upgrades?

A

The total cost of all construction at the date if COMPLETION

44
Q

Can upgrades be included in cost?

A

Only if they are done PRIOR to being leased out and they are NECESSARY for preparing for tenants etc.

45
Q

What costs CANNOT be included in cost?

A
  1. Cost to secure tenants
  2. Start up costs that are not included in NECESSARY upgrades
  3. Abnormal wastage in constructing property
46
Q

Subsequent measurements?

A
  1. Cost model

2. Fair value model

47
Q

What IAS is change in accounting policy?

A

IAS 8

48
Q

When using a model type, does it apply to all investment property?

A

Yes

49
Q

What if cost model is used?

A
  1. Held at historical carrying amount

2. Depreciated like PPE

50
Q

Advantage of fair value model?

A

Asset is recorded at fair value, may rise or fall.

For investment property this is great for capital appreciation.

51
Q

Under fair value model, when is investment property remeasured?

A
  1. End of each reporting period
  2. Transferred
  3. Sold
52
Q

Best method for fair value measurement?

A

Use similar asset in same location and condition

53
Q

What else is taken into account for fair value measurement investment property?

A

Rental income

Possible outflows

54
Q

Is investment property depreciated?

A

NO!

Not under fair value model

55
Q

When are adjustments to investment property under fair value model made?

A
  1. End of each reporting period
  2. Transfers
  3. Sale
56
Q

Where are adjustments for investment property made?

A

Recognized in PL under fair value adjustment

57
Q

Transfers
PPE -> IP
Difference in CA and FV on date transfer treated?

A

Revaluation

FV on date of transfer becomes new cost

58
Q

Transfer IP -> PPE

Difference between CA and FV on fate of transfer treated?

A

FVA

FV is taken as new cost

59
Q

When asset is PPE, does it depreciate?

A

Yes, always

60
Q

Inventory transfer
Inv -> IP
How is the difference recorded?

A

In PL

61
Q

Inventory transfer
IP -> Inv
How is the difference recorded?

A

FVA

62
Q

What amount is inventory held at?

A

Lower if cost and NRV carried forward

63
Q

What is rebuttable presumption?

A

IP on FV model seen as intention to realise through sale

Therefore; deferred tax = 28% x 66.6%

64
Q

When is the rebuttable presumption rebuttable?

A

If asset is depreciate

Then intention realise through use and deferred tax at 28%

65
Q

What are tax rates if asset if:

  1. Depreciate asset
  2. SARS grants wear and tear?
A
  1. Tax base up to base cost = recouped at 28%

2. Above base cost up to CA = CGT rate

66
Q

Tax rates on realization of land?

A

CGT rate on while amount

67
Q

Tax rates if wear and tear not granted on asset?

A

Treat same as land

CGT rate on whole amount

68
Q

What is a recoupment?

A

Recovery of funds spent

On this case, a recovery of a portion of wear and tear

69
Q

What is difference of disclosure if IP?

A

Land and building columns are joined

70
Q

Basic layout if investment property note?

A 
CA at begin
Movements for year
Transfers
Additions
Subsequent costs capitalized
Disposals
CA at end of year

Include a paragraph if person who fair valued, method, qualifications, and the date

71
Q

What must be disclosed separately in the profit before tax note ?

A

Income
Rental received
Fair value adjustments (increase)

Expenses
Direct operating expenses rated to IP
Fair value adjustment (decrease)

FAC 3702 (3 decks)

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