Chapter 2 - Investment Property Flashcards
What standard covers investment property?
IAS 40
What is an investment property under IAS 40?
Land and buildings, or both, that are held by an entity to earn rentals or capital appreciation.
True or false:
Property used in production of goods + services for the entity can be classified as investment property.
False
True or false:
A building that is currently vacant but held with a view of future development is classified as investment property
True
True or false:
Property held for sale in the ordinary course of business is classified as investment property.
False
True or false:
Properties being constructed for third parties can be classed as investment properties under the scope of IAS 40
True
A corporate office used by an organisation as part of a larger entity was purchased specifically for capital appreciation potential.
Is this classed as an investment property under IAS 40?
No.
It is used in the ordinary course of Business and contributes to the cash flow earning potential of the operation, so therefore not an investment property.
What are the 2 asset recognition principles that are relevant to recognising investment property?
It should:
(A) Be probable that future economic benefits will be obtained from the investment property
(B) the cost of the investment property can be reliably measured.
How should an investment property be initially recorded?
Initially at cost, including any transaction costs attributable directly to acquiring the property.
After initially recognising the investment property, what 2 options are there for accounting for the investment property?
- Cost model (cost less accumulated depreciation less impairment losses)
- Fair value model (revalue each period, with changes in fair value recognised immediately to the P&L).
What is the definition of fair value for investment property under IAS 40?
Price received or paid
In an orderly transaction
Between market participants
At the measurement date
Under the fair value model, what should investment property reflect on the balance sheet?
Reflects market conditions at the reporting date.
Under IAS 40, can an entity chooses different methods (i.e. cost or fair value) for different investment properties?
No.
Must use the same methodology across investment property.
If they have chosen fair value, but one property cannot be measured reliably, then that property should be measured at cost and a disclosure included as to why it could not be fair value and if possible include a range of estimates of fair value.
True or false:
Where an investment property has been measured at fair value the entity should keep using fair value in later years
True
When looking at fair value of investment property under IAS 40, what IFRS standard is relevant?
IFRS 13 Fair Value
True or false:
For investment property, fair value should be valued at “highest and best use”.
True, per IFRS 13.31
If an investment property changes use after several years, how is it treated?
Transferred out of investment property when no longer held as an investment property.
Change in use must be supported by evidence.
What are examples of a change in use and a property no longer being classified as investment property?
- owner decides to occupy the property itself
- property is being held for sale in the normal course of Business … and is reclassified to inventory
If an entities holds property as a factory, then decides to atop occupying it and lease it to a third party, how is this treated?
At the date that they dtop occupying, transferred from PPE to investment property.
Value of transfer is the fair value at the time, with any difference recognised to the profit and loss.
What disclosures are required for investment property?
- Measurement basis, i.e. cost or fair value
- the amount of rental derived for the period and any operating expenditure derived
- disclosure on any restrictions on realising income, either rental or capital gains
- for fair value, a detailed reconciliation of movements including valuation method and changes in carrying value
- for the cost model, details on depreciation method and reconciliation of the movements in carrying value
