Investment Properties Flashcards
What are investment properties?
Investment properties are real properties used for either holding by an owner under a finance lease to earn rentals or for capital appreciation. This classification applies specifically to land and buildings.
What is the classification of owner-occupied properties according to their use?
Owner-occupied properties are those used for the production or supply of goods or services, or for administrative purposes.
What types of real properties are not classified as investment properties?
Real properties are not classified as investment properties if they are used for the production or supply of goods or services or if they are used for sale in the ordinary course of business.
Provide examples of investment properties.
Examples of investment properties include:
- Land held for long-term appreciation or currently undetermined use.
- Buildings held to be leased out under an operating lease, whether vacant or not.
- Property being constructed or developed for future use as investment property.
What presumption is made if the use of land is undetermined?
If the use of land is undetermined, it is presumed to be for capital appreciation.
How does IFRS 16 require the lessee holding investment property to record?
Right-of-use asset Dr.
Lease liability Cr.
How are properties recognized if they are partly investment and partly owner-occupied?
If a property can be leased out or sold separately, separate accounting is possible. If the portions cannot be leased out or sold separately, the entire property is classified as investment property if only an insignificant portion of it is held for manufacturing or administrative purposes.
What determines whether properties held under a finance or operating lease are considered investment properties or owner-occupied properties?
If properties held under a finance or operating lease have ancillary services provided to lessees, they are considered investment properties. However, if more significant services are arranged and provided to lessees, they are considered owner-occupied properties.
How are properties leased out to affiliates classified?
Properties leased out to either subsidiary or parent are classified as investment properties.
Under what conditions do properties leased out to affiliates get treated as owner-occupied?
They are treated as such in a perspective of a group and for purposes of consolidated financial statements.
What are the two requisites for recognizing investment properties as assets?
- Probability of future economic benefits
- Possibility of reliable measurement.
How are investment properties initially measured?
They are initially measured at cost, including the directly attributable expenses.
What are examples of directly attributable expenses of investment properties (LTO)?
- Professional fees for legal services
- Property transfer taxes
- Other transaction costs
What are the costs not included in investment property (SOA)?
- Start up costs
- Operating losses before planned level of occupancy is reached
- Abnormal amount of wasted materials, labor, or other resources incurred in its construction
When can start up costs be considered part of the directly attributable expenses?
When these start up costs are necessary to bring out the condition necessary for its intended use