W6 - Investment Property

Question 1

What is an investment property?

Answer 1

Property (land or buildings - or part of a building – or both) held:
to earn rentals
or for capital appreciation
or both

rather than for:
use in the production or supply of goods and services or administrative purposes
sale in the ordinary course of business

Question 2

How do you treat ancillary services in investment property?

Answer 2

What is the level of services provided to tenants?
Examples: cleaning, security, maintenance of the property.
If a significant level of service is provided, the asset is NOT investment property
IAS 40 says: In order for a property to be classified as investment property, ancillary services provided to tenants must be insignificant to the arrangements as a whole, otherwise the property is considered to be owner-occupied PPE.

Question 3

How do you treat part-owner occupancy?

Answer 3

IAS 40 only permits splitting one property between investment properties and PPE if the parts used for different purposes could be:
Sold separately, or Leased out separately

If the portions could not be sold separately, the property is investment property only if an insignificant portion is held for use by the business i.e. owner occupied.

Question 4

How do you account for investment property?

Answer 4

Same as for PPE, except if you use the fair value model. It that case fair value must be assessed at each SoFP date. Change of FV pass through profit or loss –> No depreciation or impairment loss