IAS40 investment property Flashcards
V & E purchased vacant land referred to as Plot #124. The land is currently held for an undetermined
use
The vacant land should be classified as investment property because it is held for an undetermined use.
V & E purchased vacant land referred to as Plot #185. V & E is planning to build a new office building
on the land which V & E will use for administrative purposes
The vacant land should be classified as property, plant and equipment because it is held for future use for administrative purposes (i.e. owner-occupied).
V & E purchased five vacant plots referred to as Plots #198 to #202. V & E is planning to resell these
plots in the ordinary course of its business
The vacant land should be classified as inventory because it is held for sale in the ordinary course of business.
V & E purchased an office building. Since the acquisition date, the building has been leased out to
various unrelated tenants under operating lease agreements in terms of IFRS 16 Leases.
The building should be classified as investment property because it is held to earn lease income.
V & E purchased an office building. Since the acquisition date, the building has been used as the
head office of all the estate agents employed at V & E.
The building should be classified as property, plant and equipment because since the acquisition date the building has been used as the head office of all the estate agents employed at V & E (i.e. owner-occupied).
V & E purchased a five-storey office building. The first four floors are leased out to four tenants under
operating lease agreements in terms of IFRS 16. The top floor is used by V & E as a storage facility.
Each floor can be leased out separately under a finance lease agreement
“This building is used for a joint purpose. Each floor can be leased out separately under a finance lease agreement and should therefore be classified separately as follows:
- The first four floors should be classified as investment property because it is currently held to earn operating lease income.
- The top floor should be classified as property, plant and equipment as it is held as a storage facility which makes it owner-occupied.”
V & E purchased a five-storey office building. The first four floors are leased out to four tenants under
operating lease agreements in terms of IFRS 16. The top floor is used by V & E as a storage facility.
Each floor can be sold separately
“This building is used for a joint purpose. Due to the fact that the floors can be sold separately, it should be classified separately as follows:
- The first four floors should be classified as investment property because it is held to earn operating lease income.
- The top floor should be classified as property, plant and equipment as it is held as a storage facility which makes it owner-occupied.”
V & E purchased a five-storey office building. The first four floors are leased out to four tenants under
operating lease agreements in terms of IFRS 16. The top floor is used by V & E as a storage facility.
The title deed of the building doesn’t allow V & E to sell each floor separately nor can it be leased out
under finance lease agreements.
This building is used for a joint purpose. The floors cannot be sold separately nor can it be leased out separately under finance lease agreements. The individual floors can therefore not be classified separately according to its use. V & E needs to determine what the significant portion of the building is used for and classify the whole building accoring to that use. Because four of the five flours are held to earn operating lease income, the most significant portion of the building is used to earn operating lease income and consequently the entire building has to be classified as investment property.
V & E purchased a guesthouse during the current financial year. The entire guesthouse is leased out
under an operating lease agreement to Sun Resorts who operates the guesthouse. V & E is also
responsible for providing security services and to maintain the property’s gardens which are
insignificant in relation to the rental agreement as a whole
The guesthouse should be classified as investment property because it is mainly held to earn operating lease income. The provision of the security services and maintaining the property’s gardens are ancillary services which are not significant in relation to the whole rental agreement.
V & E purchased a guesthouse during the current financial year. The entire guesthouse is leased out
under an operating lease agreement to Sun Resorts. In terms of the contract V & E is responsible to
manage the entire guesthouse for a fixed percentage of the revenue made. The latter service is
significant in relation to the rental agreement as a whole. V & E is also responsible for providing
security services as well as to maintain the property’s gardens with the latter being insignificant in
relation to the rental agreement as a whole.
The guesthouse should be classified as property, plant and equipment because although it is held to earn operating lease income, the guesthouse is managed by V & A for a fixed percentage of revenue made which is a significant service in relation to the rental agreement as a whole. The provision of the security services and maintaining the property’s gardens are ancillary services which are not significant on its own, however, in addition to the significant management services mentioned above, it adds to the argument that the ancillary services as a whole is significant in relation to the whole rental agreement and why the gesthouse should be classified as property, plant and equipment rather than investment property.
define property ito IAS40
land or building or part of a building
owner occupied property
property used for admin (office building ) or production (factory or plant)
=ppe
held for sale
sale in the ordinary course of the business=inventory
sale for capital appreciation = ip
held for lease
finance lease = PPE
operating lease= probably IP
Define investment property
property (owned or held by a lessee as a right of use asset) used for capital appreciation, rent income or both
