Investment property

Question 1

Initial measurement of IP?

Answer 1

Always at cost and includes any directly attributable costs

Question 2

Where are the fair value adjustments of IP recognized?

Answer 2

Any gains or losses arising from a change in the fair value must be recognized in P/L.

Question 3

If on initial recognition the entity concludes that fair value is not reliably measurable then?

Answer 3

• The entity may account for the property in terms of the cost model.
• Residual value is nil.
• Still use fair value for other properties.

Question 4

Explain the transfer of PPE (cost model) to IP (fair value model).

Answer 4

IAS 16 is applied up until the date of change in use.

On this date the asset is revalued (even if on cost model) from the carrying amount to its fair value and the revaluation is accounted for in accordance with IAS 16 (it is therefore revalued one last time with e.g. a revaluation surplus recognised in OCI).

Question 5

What are the deferred tax implications for IP under the Fair value model?

Answer 5

Rebuttable presumption that the IP is held for sale (effective tax rate).
Rebutted if IP is held to consume all the economic benefits (cost model) (current tax rate)

Question 6

Exemption of the rebuttable presumption.

Answer 6

The presumption for land can never be rebutted and presumed to be held for sale (effective CGT rate).