2. Investment Property Flashcards
What is investment property?
Property held for the purpose to earn rentals or capital appreciation.
What is investment property NOT used for?
- Used in production
2. Sale in ordinary course of business
What is owner occupied property?
Property held for use in production
Some examples of investment property?
- Land held for capital appreciation
- Land held with currently undetermined use
- Building leased out under operating lease
- Vacant building leased under operating lease
Some examples NOT classified as investment property?
- Property that is inventories
- Property being developed
- Owner occupied
- Property being developed (even if future use is for investment)
- Property leased under finance lease
If property is not separable, can you account it for investment property?
Only if owner occupied portion is insignificant
What is the recognition criteria for investment property?
- Probable future economic benefits
2. Cost can be measured reliably
How is investment property measured initially?
At its cost including initial transactions
What is the cost value if it is self-constructed investment property?
Cost at date of completion
How is the value measured when exchange of investment property?
Same as PPE
What are the two models that investment property can be measured?
- Cost model
- Fair value model
(rather use fair value model)
What is the cost model?
Property carried at cost less accumulated depreciation and accumulated impairment losses.
What is the fair value model?
All investment property valued at fair value
No depreciation is accounted for
Where are gains and losses on recognized for investment property?
Profit and loss section of statement of profit and loss and other comprehensive income
What is the journal entry when there is an increase in value for investment property?
Dr. Investment property
Cr. Fair value profit
Reverse for decrease
What is a transfer regarding investment property?
Where there is a complete change in use
E.g. From investment to owner occupied
What is the journal entry when there is a transfers or investment property to owner occupied
Dr. PPE
Cr. Investment property FV
What MUST be remembered about the BEFORE transfers!?
Always do fair value adjustment before transfer
What is the journal entry when you commence development with a view to sell?
Dr. Inventories
Cr. Investment property
What is the journal entry at the end of owner occupation?
Dr. Investment property
Dr. Accumulated depreciation
Cr. Property at cost
Cr. Revaluation surplus
When is investment property derecognized?
- Permanently withdrawn from use
2. No future economic benefits
How else can the disposal of property be achieved?
By entering into sale through finance lease.
Where are gains and losses as a result of disposal recognized for investment property?
Profit or loss
Does SARS distinguish between owner-occupied properties and investment properties?
No
What is the deferred tax on investment properties (land)?
28% x 66.6%
What is deferred tax on investment properties (admin building)
- No intention to sell: 28%
2. Intention to sell: 28% x 66.6%
Test
Test
What are some examples of property that is investment property
1.