IAS 40 : Investment Property Flashcards
Definitions and Scope 1
An investment property is defined in IAS 40 as property (land or a building – or part of a building – or both) held by the owner or by the lessee as a right-of-use asset to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business.
[IAS 40.5].
An investment property is defined in IAS 40 as property (land or a building – or part of a building – or both) held by the owner or by the lessee as a right-of-use asset to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business.
[IAS 40.5].
Definitions and Scope 2
This means that any entity, whatever the underlying nature of its business, can hold investment property assets if its intention on initial recognition (either by acquisition or change in use) is to hold them for rent or for capital appreciation or both.
Subsequent to initial recognition, assets might be reclassified into and from investment property.
This means that any entity, whatever the underlying nature of its business, can hold investment property assets if its intention on initial recognition (either by acquisition or change in use) is to hold them for rent or for capital appreciation or both.
Subsequent to initial recognition, assets might be reclassified into and from investment property.
Definitions and Scope 3
‘Owner-occupied’ property is defined as property held by the owner or by the lessee as a right-of-use asset for use in the production or supply of goods or services
or for administrative purposes. [IAS 40.5].
Such property falls outside the scope of IAS 40
and is accounted for under IAS 16, together with IFRS 16, if relevant.
‘Owner-occupied’ property is defined as property held by the owner or by the lessee as a right-of-use asset for use in the production or supply of goods or services
or for administrative purposes. [IAS 40.5].
Such property falls outside the scope of IAS 40
and is accounted for under IAS 16, together with IFRS 16, if relevant.
Definitions and Scope 4
IAS 40 does not apply to:
• biological assets related to agricultural activity (see IAS 41 – Agriculture – and IAS 16); and
• mineral rights and mineral reserves such as oil, natural gas and similar nonregenerative resources.
[IAS 40.4].
IAS 40 does not apply to:
• biological assets related to agricultural activity (see IAS 41 – Agriculture – and IAS 16); and
• mineral rights and mineral reserves such as oil, natural gas and similar nonregenerative resources.
[IAS 40.4].
Definitions and Scope 5
Biological assets that are physically attached to land (for example, trees in a plantation forest) are measured at their fair value less estimated point-of-sale costs separately from the land. [IAS 41.12]. However, the land related to the agricultural activity is accounted for
either as property under IAS 16 or investment property under IAS 40. [IAS 41.2].
Biological assets that are physically attached to land (for example, trees in a plantation forest) are measured at their fair value less estimated point-of-sale costs separately from the land. [IAS 41.12]. However, the land related to the agricultural activity is accounted for
either as property under IAS 16 or investment property under IAS 40. [IAS 41.2].
Definitions and Scope 6
What primarily distinguishes investment property from other types of property interest is that its cash flows (from rental or sale) are largely independent of those from other assets held by the entity. By contrast, owner-occupied property used by an entity for administrative purposes or for the production or supply of goods or services does not generate cash flows itself but does so only in conjunction with other assets used in the production or supply process. IAS 16 applies to owned owner-occupied property and IFRS 16 applies to owneroccupied property held by a lessee as a right-of-use asset. [IAS 40.7]
What primarily distinguishes investment property from other types of property interest is that its cash flows (from rental or sale) are largely independent of those from other assets held by the entity. By contrast, owner-occupied property used by an entity for administrative
purposes or for the production or supply of goods or services does not generate cash flows itself but does so only in conjunction with other assets used in the production or supply process. IAS 16 applies to owned owner-occupied property and IFRS 16 applies to owneroccupied property held by a lessee as a right-of-use asset. [IAS 40.7]
Scope - Property interests held under operating leases
When IFRS 16 became effective in 2019 (see 1.1 above), the classification alternative for a property interest held under an operating lease, as described further below, is no longer available. This means that if a leased property meets the definition of investment property and the lessee elects the fair value model in IAS 40 as an accounting policy, the right-of use asset arising from the leased property is measured in accordance with the fair value model of IAS 40.
[IFRS 16.34].
When IFRS 16 became effective in 2019 (see 1.1 above), the classification alternative for a property interest held under an operating lease, as described further below, is no longer available. This means that if a leased property meets the definition of investment property and the lessee elects the fair value model in IAS 40 as an accounting policy, the right-of use asset arising from the leased property is measured in accordance with the fair value model of IAS 40. [IFRS 16.34].
Scope - Land 1
Land is investment property if it is held to earn rentals or for capital appreciation or for both; or for a currently undetermined future use. This is in contrast to land that is held for sale in the ordinary course of business (typically in the shorter term) or held for the production or supply of goods and services or for administrative purposes. [IAS 40.7, 8].
Land is investment property if it is held to earn rentals or for capital appreciation or for both; or for a currently undetermined future use. This is in contrast to land that is held for sale in the ordinary course of business (typically in the shorter term) or held for the production or supply of goods and services or for administrative purposes. [IAS 40.7, 8].
Scope - Land 2
If, on initial recognition, land is held for a currently undetermined future use, i.e. if an entity has not determined whether it will use the land as owner-occupied property or for sale in the ordinary course of business, it is deemed to be held for capital
appreciation and must be classified as investment property. [IAS 40.8].
If, on initial recognition, land is held for a currently undetermined future use, i.e. if an entity has not determined whether it will use the land as owner-occupied property or for sale in the ordinary course of business, it is deemed to be held for capital
appreciation and must be classified as investment property. [IAS 40.8].
Scope - Property leased to others 1
Properties leased to third parties under one or more operating lease are generally investment properties, whether they are owned freehold by the reporting entity or are right-of-use assets relating to properties held by the reporting entity (or if IFRS 16 is not
yet adopted, whether they are held by the reporting entity under a leasehold interest). This will also apply if the property is currently vacant while tenants are being sought. [IAS 40.8].
Properties leased to third parties under one or more operating lease are generally investment properties, whether they are owned freehold by the reporting entity or are right-of-use assets relating to properties held by the reporting entity (or if IFRS 16 is not
yet adopted, whether they are held by the reporting entity under a leasehold interest). This will also apply if the property is currently vacant while tenants are being sought. [IAS 40.8].
Scope - Property leased to others 2
Property that is leased to a third party under a finance lease is not an investment property but is accounted for under IFRS 16 or, if not yet adopted. [IAS 40.9].
Property that is leased to a third party under a finance lease is not an investment property but is accounted for under IFRS 16 or, if not yet adopted. [IAS 40.9].
Scope -
Property held for own use (‘owner-occupied’) 1
As noted above, owner-occupied property, that is property held for use in the production or supply of goods or services or for administrative purposes, is specifically excluded from being treated as investment property and is subject to the provisions of IAS 16 and IFRS 16. Owner-occupied property includes:
• property that is going to be owner-occupied in the future (whether or not it has first to be redeveloped);
• property occupied by employees (whether or not they pay rent at market rates); and
• owner-occupied property awaiting disposal.
[IAS 40.9].
As noted above, owner-occupied property, that is property held for use in the production or supply of goods or services or for administrative purposes, is specifically excluded from being treated as investment property and is subject to the provisions of IAS 16 and IFRS 16. Owner-occupied property includes:
• property that is going to be owner-occupied in the future (whether or not it has first to be redeveloped);
• property occupied by employees (whether or not they pay rent at market rates); and
• owner-occupied property awaiting disposal.
[IAS 40.9].
Scope -
Property held for own use (‘owner-occupied’) 2
Note that the treatment in the consolidated accounts can be different from the treatment by individual group entities.
For example, it may be the case that a property owned by one group company is held for occupation by another group company. This will be owner-occupied from the perspective of the group as a whole but can be classified as an investment property in the accounts of the individual entity that owns it, provided it meets the definition of an investment property. [IAS 40.15]
Note that the treatment in the consolidated accounts can be different from the treatment by individual group entities.
For example, it may be the case that a property owned by one group company is held for occupation by another group company. This will be owner-occupied from the perspective of the group as a whole but can be classified as an investment property in the accounts of the individual entity that owns it, provided it meets the definition of an investment property. [IAS 40.15]
Scope -
Property held for own use (‘owner-occupied’) 3
This classification in the individual entity’s financial statements will apply even if the rental is not at arm’s length and the individual entity is not in a position to benefit from capital appreciation. The IASB concluded that the more significant factor is that the property
itself will generate cash flows that are largely independent from other assets held by the entity.
[IAS 40.7].
This classification in the individual entity’s financial statements will apply even if the rental is not at arm’s length and the individual entity is not in a position to benefit from capital appreciation. The IASB concluded that the more significant factor is that the property
itself will generate cash flows that are largely independent from other assets held by the entity.
[IAS 40.7].
Scope - Investment property under construction
Prior to 1 January 2009, IAS 16 applied to property that was being constructed or developed for future use as investment property until construction or development was complete, at which time the property became investment property. Amendments to IAS 40 with effect from 1 January 2009 brought investment property under construction within the scope of IAS 40.
[IAS 40.8].
The fair value of investment property under construction is further discussed below
Prior to 1 January 2009, IAS 16 applied to property that was being constructed or developed for future use as investment property until construction or development was complete, at which time the property became investment property. Amendments to IAS 40 with effect from 1 January 2009 brought investment property under construction within the scope of IAS 40.
[IAS 40.8].
The fair value of investment property under construction is further discussed below
Scope -
Property held or under construction for sale in the ordinary course of business 1
Property held, or being constructed, with the intention of sale in the ordinary course of business is not an investment property. This includes property acquired exclusively for sale in the near future or for development and resale (such property is accounted for as inventory under IAS 2 ). [IAS 40.9].
Property held, or being constructed, with the intention of sale in the ordinary course of business is not an investment property. This includes property acquired exclusively for sale in the near future or for development and resale (such property is accounted for as inventory under IAS 2 ). [IAS 40.9].
Scope -
Property held or under construction for sale in the ordinary course of business 2
In practice, the classification between investment property and property intended for sale in the ordinary course of business is often a difficult judgement. There is only a fine line between:
- a property held for capital appreciation, and therefore classified as investment property; and
- a property intended for sale in the ordinary course of business, which would be classified as inventory. This might be the case where, for example, the owner will undertake activities to increase the property’s value prior to sale or where there is uncertainty in obtaining permits required from relevant authorities prior to commencing construction activities. In the latter case, the property, e.g. land, may continue to appreciate in value during the period where there are no development activities
In practice, the classification between investment property and property intended for sale in the ordinary course of business is often a difficult judgement. There is only a fine line between:
- a property held for capital appreciation, and therefore classified as investment property; and
- a property intended for sale in the ordinary course of business, which would be classified as inventory. This might be the case where, for example, the owner will undertake activities to increase the property’s value prior to sale or where there is uncertainty in obtaining permits required from relevant authorities prior to commencing construction activities. In the latter case, the property, e.g. land, may continue to appreciate in value during the period where there are no development activities
Scope -
Property with dual uses
A property may be used partly to derive rental income and partly as owner-occupied property. For example, an office could be sub-divided by the owner with some floors being rented to tenants whilst retaining others for own use. IAS 40 states that if a property has both investment property and non-investment property uses, providing the parts of the property could be sold or leased out under a finance lease separately, they should be accounted for separately. [IAS 40.10].
A property may be used partly to derive rental income and partly as owner-occupied property. For example, an office could be sub-divided by the owner with some floors being rented to tenants whilst retaining others for own use. IAS 40 states that if a property has both investment property and non-investment property uses, providing the parts of the property could be sold or leased out under a finance lease separately, they should be accounted for separately. [IAS 40.10].
Scope -
Property with the provision of ancillary services 1
If the owner supplies ancillary services to the user of the investment property, the property will not qualify as an investment property unless these services are an
insignificant component of the arrangement as a whole. For example, security and maintenance services are described by the standard as being insignificant.
[IAS 40.11].
If the owner supplies ancillary services to the user of the investment property, the property will not qualify as an investment property unless these services are an
insignificant component of the arrangement as a whole. For example, security and maintenance services are described by the standard as being insignificant.
[IAS 40.11].
Scope -
Property with the provision of ancillary services 2
The crucial issue is the extent to which the owner retains significant exposure to the risks of running a business. The standard uses the example of a hotel. An ownermanaged hotel, for example, would be precluded from being an investment property as the services provided to guests are a significant component of the commercial arrangements. [IAS 40.12-13].
The crucial issue is the extent to which the owner retains significant exposure to the risks of running a business. The standard uses the example of a hotel. An ownermanaged hotel, for example, would be precluded from being an investment property as the services provided to guests are a significant component of the commercial arrangements. [IAS 40.12-13].
Scope -
Property with the provision of ancillary services 3
However, the nature of the asset in question is not the key factor; rather it is the nature of the owner’s interest in the asset. If the owner’s position is, in substance, that of a passive investor, any property may be treated as investment property. If, in contrast, the owner has outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations that are being executed in the building, a property should rather be treated as owner-occupied property. [IAS 40.13].
However, the nature of the asset in question is not the key factor; rather it is the nature of the owner’s interest in the asset. If the owner’s position is, in substance, that of a passive investor, any property may be treated as investment property. If, in contrast, the owner has outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations that are being executed in the building, a property should rather be treated as owner-occupied property. [IAS 40.13].
Scope - Property where rentals are determined by reference to the operations in the property 1
It may also be inappropriate to consider a property as investment property if the owner is significantly exposed to the operation of the business in the property through a linkage between the rentals charged and the performance of the business.
It may also be inappropriate to consider a property as investment property if the owner is significantly exposed to the operation of the business in the property through a linkage between the rentals charged and the performance of the business.
Scope - Property where rentals are determined by reference to the operations in the property 2
A common example is the incidence of turnover- or profit-related rents in retail leases. If the turnover- or profit-related element is a very significant proportion of total rental then consideration should be given to whether the landlord is so exposed to the performance of the underlying retail business as to make classification of the property as investment property inappropriate. This will be a matter of judgement, including the consideration of any other facts and circumstances (for example, the length of the lease to the tenant).
A common example is the incidence of turnover- or profit-related rents in retail leases. If the turnover- or profit-related element is a very significant proportion of total rental then consideration should be given to whether the landlord is so exposed to the performance of the underlying retail business as to make classification of the property as investment property inappropriate. This will be a matter of judgement, including the consideration of any other facts and circumstances (for example, the length of the lease to the tenant).
Scope
The following are examples of items that are not investment property:
property held for sale in the ordinary course of business or in the construction or development for such sale (IAS 2);
property being constructed or developed on behalf of third parties (IAS 11);
owner-occupied property, including property held for future use or held for future development and subsequent use as owner-occupied property;
property occupied by employees (regardless of whether the employees pay rent at market rates);
owner-occupied property awaiting disposal (IAS 16); and
property leased out to another entity in terms of a finance lease agreement.
The following are examples of items that are not investment property:
property held for sale in the ordinary course of business or in the construction or development for such sale (IAS 2);
property being constructed or developed on behalf of third parties (IAS 11);
owner-occupied property, including property held for future use or held for future development and subsequent use as owner-occupied property;
property occupied by employees (regardless of whether the employees pay rent at market rates);
owner-occupied property awaiting disposal (IAS 16); and
property leased out to another entity in terms of a finance lease agreement.
Recognition 1
An owned investment property should be recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the entity and its cost can be measured reliably. [IAS 40.16].
An owned investment property should be recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the entity and its cost can be measured reliably. [IAS 40.16].
Recognition 2
These recognition criteria apply for any costs incurred, whether initially or subsequently.
This means that all costs related to investment property, whether on initial recognition or thereafter (for example, to add to, or replace part of, or service a property) must meet the recognition criteria at the point at which the expenditure is incurred if they are to be capitalised. [IAS 40.17].
These recognition criteria apply for any costs incurred, whether initially or subsequently.
This means that all costs related to investment property, whether on initial recognition or thereafter (for example, to add to, or replace part of, or service a property) must meet the recognition criteria at the point at which the expenditure is incurred if they are to be capitalised. [IAS 40.17].
Recognition 3
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 19A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is recognised in accordance with IFRS 16.
[IAS 40.19A].
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 19A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is recognised in accordance with IFRS 16.
[IAS 40.19A].
Recognition -
Expenditure prior to planning permissions/zoning consents 2
Application for such permissions supports the entity’s intention as to the use of the property and may be considered as a factor in classifying the asset. However, unless an entity is considering a number of possible uses of the asset at its initial recognition, the
uncertainty in obtaining relevant permission would usually not affect the classification of the property which, as set out in 2 above, is mainly based on the entity’s intention when the property is first acquired. Subsequent to initial recognition, assets might be
reclassified into and from investment property
Application for such permissions supports the entity’s intention as to the use of the property and may be considered as a factor in classifying the asset. However, unless an entity is considering a number of possible uses of the asset at its initial recognition, the
uncertainty in obtaining relevant permission would usually not affect the classification of the property which, as set out in 2 above, is mainly based on the entity’s intention when the property is first acquired. Subsequent to initial recognition, assets might be
reclassified into and from investment property
Recognition -
Expenditure prior to planning permissions/zoning consents 3
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely
guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the
relevant permissions will be granted
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely
guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the
relevant permissions will be granted
Recognition -
Expenditure prior to planning permissions/zoning consents 3
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the relevant permissions will be granted
The likelihood of obtaining such permissions, however, is relevant in recognition and measurement of any additional costs to the property. Developers typically incur significant costs prior to such permissions being granted and such permissions are rarely guaranteed. Therefore, in assessing whether such pre-permission expenditure can be capitalised – assuming it otherwise meets the criteria – a judgement must be made, at the date the expenditure is incurred, of whether there is sufficient probability that the relevant permissions will be granted
Recognition -
Expenditure prior to planning permissions/zoning consents 4
Conversely, if during the application and approval
process of such permits it is no longer expected that necessary permits will be granted, capitalisation of pre-permission expenditure should cease and any related amounts that were previously capitalised should be written off (either under the fair value model in IAS 40 or in accordance with IAS 36 – Impairment of Assets, if the cost model is applied.
Conversely, if during the application and approval
process of such permits it is no longer expected that necessary permits will be granted, capitalisation of pre-permission expenditure should cease and any related amounts that were previously capitalised should be written off (either under the fair value model in
IAS 40 or in accordance with IAS 36 – Impairment of Assets, if the cost model is applied
Recognition - Repairs and maintenance 1
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
Recognition - Repairs and maintenance 1
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised.
[IAS 40.19].
Day-to-day servicing, by which is meant the repairs and maintenance of the property which largely comprises labour costs, consumables and minor parts, should be recognised in profit or loss as incurred. [IAS 40.18].
However, the treatment is different if large parts of the properties have been replaced – the standard cites the example of interior walls that are replacements of the original walls. In this case, the cost of replacing the part will be recognised at the time that cost is incurred if the recognition criteria are met, while the carrying amount of the original part is derecognised. [IAS 40.19].
Recognition - Repairs and maintenance 2
The inference is that by restoring the asset to its originally assessed standard of performance, the new part will meet the recognition criteria and future economic benefits will flow to the entity once the old part is replaced. The inference is also that replacement is needed for the total asset to be operative. This being the case, the new walls will therefore meet the recognition criteria and the cost will therefore be capitalised.
Other than interior walls, large parts that might have to be replaced include elements such as lifts, escalators and air conditioning equipment.
The inference is that by restoring the asset to its originally assessed standard of performance, the new part will meet the recognition criteria and future economic benefits will flow to the entity once the old part is replaced. The inference is also that replacement is needed for the total asset to be operative. This being the case, the new walls will therefore meet the recognition criteria and the cost will therefore be capitalised.
Other than interior walls, large parts that might have to be replaced include elements such as lifts, escalators and air conditioning equipment
Recognition
Investment property under construction should be accounted for by applying IAS 40. This implies that investment property under construction should be measured using either the cost model or the fair value model. If an entity cannot reliably determine the fair value of this investment property under construction, but expects to be able to determine the fair value reliably once construction is complete, it shall measure that property at cost until either its fair value becomes reliably determinable or construction is complete (whichever comes first).
Investment property under construction should be accounted for by applying IAS 40. This implies that investment property under construction should be measured using either the cost model or the fair value model. If an entity cannot reliably determine the fair value of this investment property under construction, but expects to be able to determine the fair value reliably once construction is complete, it shall measure that property at cost until either its fair value becomes reliably determinable or construction is complete (whichever comes first).
Initial Measurement - Intro
IAS 40 requires an owned investment property to be measured initially at cost, which includes transaction costs. [IAS 40.20].
If a property is purchased, cost means purchase
price and any directly attributable expenditure such as professional fees, property transfer taxes and other transaction costs. [IAS 40.21].
IAS 40 requires an owned investment property to be measured initially at cost, which includes transaction costs. [IAS 40.20].
If a property is purchased, cost means purchase
price and any directly attributable expenditure such as professional fees, property transfer taxes and other transaction costs. [IAS 40.21].
Initial Measurement -
Start-up costs and self-built property 1
IAS 40 specifies that start-up costs (unless necessary to bring the property into working condition) and operating losses incurred before the investment property achieves the planned occupancy level, are not to be capitalised. [IAS 40.23(a), 23(b)].
IAS 40 specifies that start-up costs (unless necessary to bring the property into working condition) and operating losses incurred before the investment property achieves the planned occupancy level, are not to be capitalised. [IAS 40.23(a), 23(b)].
Initial Measurement -
Start-up costs and self-built property 2
If a property is self-built by an entity, the same general principles apply as for an acquired property (see Initial Measurement above).
However, IAS 40 prohibits capitalisation of abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property. [IAS 40.23(c)].
If a property is self-built by an entity, the same general principles apply as for an acquired property (see Initial Measurement above).
However, IAS 40 prohibits capitalisation of abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property. [IAS 40.23(c)].
Initial Measurement - Deferred payments
If payment for a property is deferred, the cost to be recognised is the cash price equivalent (which in practice means the present value of the deferred payments due) at the recognition date. Any difference between the cash price and the total payments to
be made is recognised as interest expense over the credit period. [IAS 40.24].
If payment for a property is deferred, the cost to be recognised is the cash price equivalent (which in practice means the present value of the deferred payments due) at the recognition date. Any difference between the cash price and the total payments to
be made is recognised as interest expense over the credit period. [IAS 40.24].
Initial Measurement -
Initial measurement of property held under a lease 1
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 29A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is measured initially at its cost in accordance with IFRS 16. [IAS 40.29A].
When IFRS 16 became effective in 2019 (see 1.1 above), a new paragraph 29A to IAS 40 was added so that an investment property held by a lessee as a right-of-use asset is measured initially at its cost in accordance with IFRS 16. [IAS 40.29A].
Initial Measurement -
Initial measurement of property held under a lease 2
If a lessee leases a property and earns rental income by leasing the property to another lessee (sublease), the resulting right-of-use asset should be accounted for as an investment property. The asset accounted for as an investment property is not the physical property,
but the right-of-use asset (the lease interest in the property). The physical property will still be accounted for as an asset in the owner’s financial statements. If the fair value model is applied, the right-of-use asset should be measured at fair value and not the underlying property.
If a lessee leases a property and earns rental income by leasing the property to another lessee (sublease), the resulting right-of-use asset should be accounted for as an investment property. The asset accounted for as an investment property is not the physical property,
but the right-of-use asset (the lease interest in the property). The physical property will still be accounted for as an asset in the owner’s financial statements. If the fair value model is applied, the right-of-use asset should be measured at fair value and not the underlying property.
Initial Measurement -
Initial measurement of property held under a lease 3
Example 16.3: Right-of-use asse - use asset see OneNote
Example 16.3: Right-of-use asse -use asset see OneNote
Initial Measurement -
Initial measurement of assets acquired in exchange transactions
The requirements of IAS 40 for investment properties acquired in exchange for nonmonetary assets, or a combination of monetary and non-monetary assets, are the same as those of IAS 16. [IAS 40.27-29]
The requirements of IAS 40 for investment properties acquired in exchange for nonmonetary assets, or a combination of monetary and non-monetary assets, are the same as those of IAS 16. [IAS 40.27-29]
Initial Measurement - Borrowing costs 1
IAS 23 – Borrowing Costs – generally mandates capitalisation of borrowing costs in respect of qualifying assets.
However, application of IAS 23 to borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that are measured at fair value, such as investment property, is not required because it would not affect the measurement of the investment property in the statement of financial position; it would only affect presentation of interest expense and fair value gains and losses in the income statement.
IAS 23 – Borrowing Costs – generally mandates capitalisation of borrowing costs in respect of qualifying assets.
However, application of IAS 23 to borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that are measured at fair value, such as investment property, is not required because it would not affect the measurement of the investment property in the statement of financial position; it would only affect presentation of interest expense and fair value gains and losses in the income statement.
Initial Measurement - Borrowing costs 2
Nevertheless, IAS 23 does not prohibit capitalisation of
eligible borrowing costs to such assets as a matter of accounting policy.
To the extent that entities choose to capitalise eligible borrowing costs in respect of such assets, in our view, the methods allowed by IAS 23 should be followed.
Nevertheless, IAS 23 does not prohibit capitalisation of
eligible borrowing costs to such assets as a matter of accounting policy.
To the extent that entities choose to capitalise eligible borrowing costs in respect of such assets, in our view, the methods allowed by IAS 23 should be followed.
