IAS40 - Investment Property

Question 1

objective of IAS40?

Answer 1

to prescribe accounting treatment for investment property and related disclosure requirements

Question 2

IAS40 doesn’t apply to…

Answer 2

biological assets

mineral rights/reserves (e.g., oil, gas etc)

Question 3

carrying amount?

Answer 3

the amount at which an asset is recognised in the SOFP

Question 4

cost?

Answer 4

the amount of cash paid to acquire an asset

Question 5

fair value?

Answer 5

the price that would be received to sell an asset in an orderly transaction today

Question 6

investment property?

Answer 6

property (land, building or part of a building) held to earn rental income or resold for capital appreciation

Question 7

what is investment property NOT for?

Answer 7

• sold in the ordinary course of business (IAS2, inventory)
• used for admin, prod/supply of goods/services (IAS16, PPE)

Question 8

owner occupied property?

Answer 8

property held for use in the production/supply of goods/services (IAS16, PPE)

Question 9

examples of investment property?

Answer 9

• land held for capital appreciation
• land held for undetermined future use
• building owned by the entity & leased
• vacant building expected to be leased
• property under construction for future use for investment purposes

Question 10

examples of property that are NOT classed as IP?

Answer 10

• property intended for sale in ordinary course of business
• owner occupied property

Question 11

how are properties that are partially used for prod/supply of goods/services treated?

Answer 11

• if an entity accounts for these portions separately, they can be accounted for separately
• if an insignificant part is used for supply/prod, can be accounted for as IP

Question 12

when is an IP recognised as an asset?

Answer 12

• probably future economic benefits
• cost can be measured reliably

Question 13

IP is initially measured at…

Answer 13

cost

cost includes purchase price and directly attributable expenditure

e.g., professional fees, legal fees, property taxes etc

Question 14

IAS8?

Answer 14

states accounting treatment for changes in accounting policies, estimates and errors

Question 15

when can accounting policy be changed?

Answer 15

when it results in more relevant & reliable info

with IAS40 IP, fair value model is the most relevant and reliable

Question 16

two policies an entity can choose for in subsequent recognition for their IP?

Answer 16

cost model or fair value model

must be chosen for ALL properties

Question 17

FV model?

Answer 17

measures IP at fair value

Question 18

if fair value cannot be reliably measured…

Answer 18

use cost model

Question 19

cost model?

Answer 19

IP measured in accordance with IAS5 (non-current assets held for sale)

at cost

Question 20

when is IP derecognised?

Answer 20

when disposed of or when no longer expected to derive economic benefit

Question 21

what should an entity disclose regarding IP?

Answer 21

• whether it applies FV model or cost model
• amounts recognised in P&L
• change in FV
• contractual obligations

Question 22

cost model?
fair value model?

Answer 22

cost model = cost - accum. depreciation (same as PPE)

FV model = FV (any change in value is recognised in P&L and no depreciation is charged)