Investment Properties

Question 1

What is an investment Property?

Answer 1

Land or buildings held by an owner or a lessee to earn rentals or capital appreciation

Question 2

What legislation deals with the Accounting of investment property?

Answer 2

IAS 40

Question 3

What are the things to be considered when dealing with Investment property?

Question 4

What is owner-occupied property?

Answer 4

• land or buildings used in the production or supply of goods or services or for admin purposes

Question 5

What is the different categories Land or buildings could be classified into?

Answer 5

• Inventory
• owner occupied
• Investment

Question 6

What does it mean if a property has joint use?

Answer 6

It means that the land or buildings is being used in two different categories of use

Question 7

How should Joint-use property be classified?

Answer 7

• check if the portions can be sold or leased separately
• if yes, account for them separately as single-use properties
• if no, is the second use a significant portion of the use of the property?
  > if no, account for property only considering main use
  > if yes, account for the whole property as owner-occupied property

Question 8

what are the consolidation considerations?

Question 9

How should Investment Property be accounted for?

Answer 9

-initial measurement
* if the property is owned, then costs + any transaction costs
* if it is leased, then in accordance with how we measure right of use assets

• subsequent measurement
• If carried at Fair Value
  > adjustments go through profit or loss
  > avoid double counting by not counting any items classified as their own asset or liability
  > if FV cannot be determined, measure it on cost in the meantime
  >
• if carried at Cost
  > follow the relevant standard that applies
  > the residual value of investment property shall always be zero
• Deferred Tax stuff
• Disclosure
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Question 10

How should Inventory Property be accounted for?

Answer 10

In accordance with IAS 2

Question 11

How should Owner-occupied property be accounted for?

Answer 11

In accordance with IAS 16

Question 12

How should we account for a change in classification of land and buildings? List all scenarios

Answer 12

1. Investment property at cost -> owner occupied or Inventory
   * no remeasurement of any costs
2. Investment property at Fair Value -> owner occupied or Inventory
   * cost = fair value at the date of change
3. Owner-occupied -> Investment property at Fair Value
   * difference between the carrying value and the Fair value at the date of change is accounted for as a revaluation in terms of IAS 16
4. Inventory -> Investment Property at Fair Value
   * Difference between carrying Value and Fair value at date of change going into Profit and Loss Adjustment

Question 13

What deferred Tax complications can arise when accounting for Investment Property?

Answer 13

It is presumed that the business will sell the building to earn its recover its expenditure, and therefore, the CGT rate will apply to any tax related to this item.

However if the building is being depreciated, or there is a business model to consume all economics benefits over time rather than through sale, we should instead not apply the CGT rate and just the normal rate of Tax

Question 14

What are the disclosure requirements for investment property?

Question 15

Should a fair value adjustment to investment property always go through profit and loss?

Answer 15

Yes, the standard tells us this