IAS 40- Investment Property Flashcards
Objective
Prescribes acounting treatment for investment property and related disclosure requirements
Scope
- Does not apply to biological assets - IAS41 & IAS 16 or mineral rights and other non-regenerative resources.
What is carrying amount?
The value at which an asset is recognized in the financial statement.
The cost
Cash or equivalent paid, or fair value of consideration given, to acquire/contract asset.
OR
Amount attributed to asset wen intially reccognised in accordance to specific requirement of iFRS,
What is fair value?
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.
What is investment property?
Property (land or building or both) held by the owner or lessee (as a right-of-use asset) primarily for earning rentals or for capital appreciation, rather than for use of production or supply of goods or services, administrative purposees, sale in the ordinary course of business.
What is owner-occupied property?
Property held by the owner or lessee (as a right- of-use asset) primarily for use in the production or supply of goodds or services or for administrative purposes.
What is the criteria for investment property?
- Held for generating cashlows independent of other assets.
- E.g . lt cap appreciation, undetermined future use, prop under construction for future investment use.
- Ancilliary services provided should be insignificant to qualify as investment property. E.g providing secuirty and maintenance qualifies.
*
What is not investment property?
- Property intended for sale in the ordinary course of business under construction for sale, or development and rsale.
- Owner occupied property, or held for future occupation, or employee occupied property and property awaiting disposal.
- Property leased under finance leases.
How should mixed -use properties be accounted for?
**Separately if separable. **
If not separable, qualifies as investment property if the non-investment portion is insignificant.
Must disclose judgements made and apply consistent criteria.
What is the recognition criteria for an investment property?
Probable future economic benefits associated with propery will flow to the entity, and when the cost of the property can be reliably measured.
How is the asset measured at initial recognition?
At cost including transaction costs e.g legal fees, property taxes and other transaction costs.
exclude: abnormal wast on material, labor and losses before achieving planned occupancy lvls.
Initial recognition with cash equivalents:
* Deferred payments- cost w/ interest recognised as interest expense over the credit period.
* Exchange treatment - measured at fair value unless exhange lacks commercia substance or fair values are not reliably measured. If not fair value, cost is carrying amount of asset given up.
Comm substance= if alters fcf or entity specific value of affectd ops
How are day to day servicing costs treated?
Labor, consumables and minor parts for repairs and maintenance are to be expensed as incurred not recognised.
How are replacement parts treated?
Cost recognised in carrying amount of property when incurred as long as recognition criteria is met. The replaced part is derecognised.
Accounting policy choice?
An entity must select either the fair value model or the cost model for all of its investment property.
A change in the policy should occur only if provides more reliable and relevant information about the entity’s financial position, performance or cashflows.
Subsequent measurement
At fair value with gains or losses recognised in p&l.
Should refelect rental income from current leases and market assumptions.
For leased property- right of use asset is measured at fair value not underlying property.
Exceptional cases for fair value measurement
In exceptional cases where fair value cannot be reliably measured (e.g., inactive market), the property is measured using the cost model.
Under the cost model, investment property is measured in accordance with IFRS 5 for assets held for sale, IFRS 16 for lessees, or IAS 16 for other cases.
Criteria for transferring property to or from investment property:
- Change in use - commencement or end of owner- occupation, development ofr sale, inception of an operating lease.
- During disposal or redevelopment remains investment property until derecognised (unless change in use)
- Effect on carrying amount: doesn’t change if using the cost model. From investment category to inventories or owner occupied is fair value at date of change in use.
Transfer from Inventories to Investment Property:
Any difference between fair value at the date of transfer and previous carrying amount is recognized in profit or loss.
Transfer from owner-occupied property to investment property:
Depreciation and impairment losses are recognized up to the date of change in use, with any difference between carrying amount and fair value treated as a revaluation in accordance with IAS 16.
Completion of Self-Constructed Investment Property:
Any difference between fair value at completion and previous carrying amount is recognized in profit or loss.
Derecognition criteria
permanently withdrawn from use with no future economic benefits expected from its disposal.
through sale, or finance lease on d
Recognition of Gains or Losses:
Difference between net disposal proceeds and carrying amount, except in sale and leaseback transactions governed by IFRS 16.
Consideration in gain or loss is determined in accordance with the transaction price requirements of IFRS 15, with subsequent changes accounted for similarly.
