Investment Property Flashcards
Investment Property
Under PAS 40, investment property is defined as
Property held to earn rentals or for capital appreciation
Investment property is a land or a building or part of a building or both held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both.
Investment Property
Examples of investment property (5):
✓ Land held for long-term capital appreciation.
✓ Land held for undecided future use.
✓ Building leased out under an operating lease.
✓ Vacant building held to be leased out under an operating lease.
✓ Property under construction as investment
property.
Investment Property
Examples of investment property (5):
✓ Land held for long-term capital appreciation.
✓ Land held for undecided future use.
✓ Building leased out under an operating lease.
✓ Vacant building held to be leased out under an operating lease.
✓ Property under construction as investment
property.
Investment Property
The following are NOT investment property and, therefore, are outside the scope of PAS 40:
✓ Property held for use in the production or supply of goods or services or for administrative purposes (Property, plant and equipment - PAS 16).
✓ Property held for sale in the ordinary course of business or in the process of construction of
development for such sale (Inventories - PAS 2).
✓ Property being constructed or developed on
behalf of third parties (Construction Contracts - IFRS15).
✓ Owner-occupied property (Property, Plant and Equipment).
✓ Property leased to another entity under a finance lease.
Investment Property
Explain if Partial own use
If the owner uses part of the
property for its own use, and part to earn rentals or for capital appreciation.
✓ If the portions can be sold or leased out
separately, they are accounted for separately.
✓ If the portions cannot be sold or leased out
separately, the property is investment property
only if the owner-occupied portion is insignificant.
Investment Property
Explain the property is Ancillary services
Ancillary services - If the enterprise provides ancillary services to the occupants of a property held by the enterprise, the appropriateness of classification as
investment property is determined by the
significance of the services provided.
✓ If those services are a relatively insignificant
component of the arrangement as a whole (for
instance, the building owner supplies security and maintenance services to the lessees), then the enterprise may treat the property as investment property.
✓ Where the services provided are more significant (such as in the case of an owner-managed hotel), the property should be classified as owner occupied
Investment Property
Explain if Intracompany rentals
Intracompany rentals - Property rented to a parent, subsidiary, or fellow subsidiary.
✓ Not investment property in consolidated financial statements that include both the lessor and the lessee, because the property is owner-occupied from the perspective of the group.
✓ However, such property could qualify as
investment property in the separate financial
statements of the lessor.
Investment Property
Explain Recognition
✓ Investment property should be recognized as an asset;
✓ When it is probable that the future economic
benefits that are associated with the property will flow to the enterprise.
✓ The cost of the property can be reliably measured.
Investment Property
Initial measurement
o Investment property is initially measured at cost, including transaction costs.
o Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy.
Investment Property
Subsequent Measurement
o After initially recognizing the investment property at cost, an enterprise may choose between:
✓ Fair value model
✓ Cost model
Investment Property
Explain if an Entity choose Fair Value Model
Fair value model
o Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.
o Where a property has previously been measured at fair value, IT SHOULD CONTINUE TO BE MEASURED AT THE FAIRVALUE UNTIL DISPOSAL, even if comparable market transactions become less frequent or market prices become less readily available.
Investment Property
Explain if an Entity choose Cost Model
After initial recognition, investment property is
accounted for in accordance with the cost model. (Yung may mga depreciation, or what)
Investment Property
Explain Transfers to or from Investment Property Classification
Transfers to, or from, investment property should only be made when there is a change in use, evidenced by:
✓ Commencement of owner-occupation (transfer from investment property to owner-occupied property).
✓ Commencement of development with a view to sale (transfer from investment property to inventories).
✓ End of owner-occupation (transfer from owner occupied property to investment property).
✓ Commencement of an operating lease to another
party (transfer from inventories to investment
property).
✓ End of construction or development (transfer from property in the course of construction/development to investment property.
Investment Property
Accounting for Transfers
From
Investment
property carried
at fair value
To
Owner-occupied
property or
inventories
Treatment?
Fair value at the change of
use is the ‘cost’ of the
property.
Investment Property
Accounting for Transfers
From
Owner-occupied
property
To
Investment
property carried
at fair value
Treatment?
Difference in carrying
amount and fair value as
revaluation under PAS 16.
Investment Property
Accounting for Transfers
From
Inventories
To
Investment
property at fair
value
Treatment?
Difference in carrying
amount and fair value is
recognized in profit or loss.
Investment Property
Accounting for Transfers
From
Investment
property under
construction
To
Completed
investment
property that will
be carried at fair
value
Treatment?
Difference between the fair
value at the date of
transfer and the previous
carrying amount should be
recognized in net profit or
loss.
Investment Property
Accounting for Transfers
From
Investment
property under
the cost model
To
Owner-occupied
property or
inventories
Treatment?
No change in the carrying
amount of the property
transferred.
Investment Property
When an owner-occupied property is transferred to an investment property at fair value, a decrease in the carrying amount of the property to its fair value at the date of transfer
a. Is carried directly to equity
b. Is absorbed by retained earnings
c. Is recognized in profit and loss at all times
d. Is recognized in profit and loss, or, for a revalued property, charged against the revaluation surplus to the extent of its credit balance
d. Is recognized in profit and loss, or, for a revalued property, charged against the revaluation surplus to the extent of its credit balance
Investment Property
Basta tandaan pag accounting of transfer:
1. Remeasure muna
2. Reclassify
Oks
