05 Investment Property

Chapter 5
Investment Property
© 2008 Nelson Lam and Peter Lau Intermediate Financial Reporting: An IFRS Perspective (Chapter 5) - 1
Agenda
1. Applicable Standard and Scope

2. Property Classified as Investment Property
3. Recognition
4. Measurement at Recognition
5. Measurement after Recognition
6. Transfers
7. Derecognition
8. Disclosure
• Investment property should be accounted for by

using IAS 40 Investment Property.
• A lessee may also be required to measure its
leases by using IAS 40 for:
1. investment property interests held under a lease
accounted for as a finance lease and
2. investment property provided to a lessee under
an operating lease.
• IAS 40 does not deal with matters covered in IAS 17 Leases, including:
1. Classification of leases as finance leases or operating leases;
2. Recognition of lease income from investment property (see also IAS 18
Revenue);
3. Measurement in a lessee’s financial statements of property interests held
under a lease accounted for as an operating lease;
4. Measurement in a lessor’s financial statements of its net investment in a
finance lease;
5. Accounting for sale and leaseback transactions; and
6. Disclosure about finance leases and operating leases.
• IAS 40 also does not apply to:
1. biological assets related to agricultural activity (see IAS 41 Agriculture); and
2. mineral rights and mineral reserves such as oil, natural gas and similar non-
regenerative resources.
2. Classified as Investment Property
• Investment property is defined as:

– property (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, rather than for:
1. use in the production or supply of goods or services or for
administrative purposes; or
2. sale in the ordinary course of business.
• In order to classify a property as investment

property, an entity has to ensure that the property
can fulfil both: Mode of Usage
1. The mode of usage (either to earn rental and/or for
capital appreciation), and
2. The mode of ownership (either owned or held under a
Mode of
finance lease).
Ownership
• IAS 40 has contrasted an investment property with

an owner-occupied property.
• An owner-occupied property is not an investment Mode of Usage
property, but should be a property under IAS 16,
Property, Plant and Equipment (see Chapter 3).
• Owner-occupied property is defined as:
– property held (by the owner or by the lessee under a
finance lease) for use in the production or supply of
goods or services or for administrative purposes.
• Comparing with
– the definition of investment property that has the term
“to earn rental”, Mode of Usage
– the definition of property, plant and equipment also
has a similar term “held …… for rental to others”.
• In order to distinguish them, an entity can consider a
property from two correlated aspects:
1. The generation of cash flows, and
2. The significance of ancillary services.
.
Extent of Ancillary
Cash Flow Services
1. The generation of cash flows
Mode of Usage
Investment Owner-occupied
Property property
• held to earn rentals or for • the production or supply of

capital appreciation or both goods or services (or the use
• therefore, generates cash of property for administrative
flows largely independently purposes)
of the other assets held by • generates cash flows that are
an entity. attributable not only to
property, but also to other
assets used in the production
or supply process
Cash Flow
2. Extent of Ancillary Services
Mode of Usage
Investment Owner-occupied
Property property
How to determine
• No significant ancillary those in between • Significant ancillary
services provided these 2 ends? services provided
Passive investor Significant exposure to
Judgement used and variation in the cash
 Investment property applied consistently flows
 Use IAS 40
Owner-occupied
Use IAS 16
Extent of Ancillary
Cash Flow Services
• To meet the definition of investment property, a

property must be
– owned by an entity or
– held by an entity under a finance lease
• Implies that a property interest held by a lessee
under an operating lease cannot be classified as Mode of
investment property since such property interest is Ownership
neither owned nor held by a lessee under a finance
lease.
• IAS 40 amended in December 2003 to allow that a

property interest that is held by a lessee under an
operating lease may be classified and accounted for An entity has a choice
as investment property if, and only if:
1. The property would otherwise meet the definition of an
investment property and
Mode of
2. The lessee uses the fair value model in accordance Ownership
with IAS 40 for the asset recognised.
• This classification alternative is available on a
property-by-property basis
• However, once this classification alternative is
selected for one such property interest held under
an operating lease,
– all properties classified as investment property shall
be accounted for using the Fair Value Model
Example
Examples that are NOT investment property include: Which IAS?

• Owner-occupied property IAS 16 & 17
• Property (completed or under development) intended
for sale in the ordinary course of business IAS 2
• Property being constructed or developed for third parties IAS 11
• Property leased out under finance lease IAS 17
• Property that is being constructed or developed for
future use as investment property IAS 16 & 17
• How’s the classification for existing investment
property being redeveloped for continued future
Still Investment Property
use as investment property?
Example
• GV Inc. has three properties in Hong Kong and

overseas and uses them to earn rental. Except for
Property C which is owned by GV, the other 2
properties, Property A and B are held by GV under
operating leases.
• Evaluate the accounting implication of IAS 40 on
GV’s properties.
Example
• Property C meets the definition of investment property under IAS 40 and

GV must use IAS 40 to account for it.
• Property A and B do not meet such definition since they are neither
owned nor held by GV under a finance lease.
• However, GV has a classification alternative under IAS 40 to choose to
account for either Property A or B (or both) as investment property.
• In consequence, GV can consider the following alternatives:
• If either Property A or B (or both) are not accounted for under IAS 40 as
investment property, GV will be required to use the fair value model in
accordance with IAS 40 to account for all properties classified as investment
property, including Property C and Property A and/or B.
• The property not classified as investment property should be accounted for
by using IAS 17 Leases.
• If both Property A and B are not classified as investment property, GV will be
required to account for Property A and B as a lease under IAS 17 and will
choose between cost model and fair value model in accordance with IAS 40
to account for Property C.
• Some properties comprise a portion held as investment property and

another portion NOT held as investment property.
• If these portions:
Could be sold or leased out separately under a finance lease

separately  an entity accounts for the portions separately
Could not be  the property is investment property

sold separately only if an insignificant portion is NOT held as
investment property
An entity owns property that is leased to, and occupied by, its
parent or another subsidiary
 The property does not qualify as investment property in the
consolidated financial statements, because the property is
owner-occupied from the perspective of the group
Consolidated
 But, from the perspective of the entity that owns it, the
property is investment property if it meets the definition of
investment property
Individual
• The lessor treats the property as investment
property in its individual financial statements.
3. Recognition
Recognition criteria Subsequent
Initial Cost
Expenditure
• Same as IAS 16 Property, Plant and Equipment
• Investment property shall be recognised as an asset when, and only
when:
a) it is probable that the future economic benefits that are associated
with the investment property will flow to the entity; and
b) the cost of the investment property can be measured reliably.
3. Recognition
Recognition criteria Subsequent
(capitalisation) for Initial Cost
Expenditure
Old IAS 16 Criteria not • Probable that future • Probable that future
the same economic benefit of economic benefits in
the asset will flow to excess of the originally
the enterprise assessed standard of
• Cost measured performance of the
reliably existing asset will flow
to the entity
Now IAS 16 Same • Probable that future economic benefit of the asset
and IAS 40 criteria will flow to the entity
• Cost measured reliably
Same criteria applied to both costs
Expenditure not fulfilling the recognition Clearer approach on so-called

criteria will be charged to income
statement Component Accounting
4. Measurement at Recognition
• An entity is required to initially recognise and measure

an investment property at its cost, including transaction
costs.
• This requirement together with the definition of the cost
is similar to that of property, plant and equipment (see
Chapter 3).
• The initial cost of a property interest held under a lease
and classified as an investment property
– shall be as prescribed for a finance lease in IAS 17
• i.e. the asset shall be recognised at the lower of
– the fair value of the property and
– the present value of the minimum lease
payments.
• Introduce the measurement base for investment
property acquired from exchange
• Same as IAS 16 Property, Plant and Equipment
Introduce Cost Model and choose either Fair Value Model

and Cost Model
• IAS 40 implicitly implies that the choice can only be elected on the
first-time adoption of IAS 40
• The model chosen should be applied to all investment properties,
except for
• Property held under operating lease No choice,
classified as investment properties only fair value model
• Investment property backing liabilities
that pay a return linked directly to the
Choose a model for
fair value of, or returns from specific
all such properties
assets including that investment property
• Investment property with a fair value that
cannot be reliably determinable on a No choice,
continuing basis (i.e. inability to determine only cost model
fair value reliably)
• There is a rebuttable presumption that an Fair Value Model

entity can reliably determine the fair value of
an investment property on a continuing basis. Cost Model
• However, in exceptional cases and in initial recognition of investment
property, there is clear evidence that the fair value of the investment
property is not reliably determinable on a continuing basis.
– This arises when, and only when,
• comparable market transactions are infrequent and
• alternative reliable estimates of fair value (for example, based on
discounted cash flow projections) are not available.
• In such cases, an entity shall measure that investment property (alone)
using the cost model in IAS 16
– residual value shall be assumed to be zero
– apply IAS 16 until disposal of the investment property
– shall continue to account for other investment properties using the
fair value model
Cost Model
• For an entity that chooses the cost model, the entity should measure all
of its investment property in accordance with the cost model in IAS 16,
except for
1. Different models are adopted in accounting for liability-linked investment
property and other investment property, and
2. Those investment properties that meet the criteria to be classified as held
for sale (or are included in a disposal group that is classified as held for
sale) in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. (see Chapter 22)
After initial recognition, an entity that chooses  Fair Value Model

• shall measure all of its investment property at fair value, except in
the cases that
1. the fair value cannot be determined reliably, or
2. the cost model is chosen for the investment property backing liabilities that pay a
return linked directly to the fair value of, or returns from specific assets including
that investment property
• When a property interest held by a lessee under an operating
lease is classified as an investment property
 the fair value model must be applied for all investment
properties
• A gain or loss arising from a change in the fair value of
investment property shall be recognised in profit or loss for
the period in which it arises
Fair Value Model
• Fair value is defined as the amount for which an asset could be

exchanged between knowledgeable, willing parties in an arm’s length
transaction
– Same definition used in other IFRSs and IASs
– But IAS 40 provides more explanations unique for a fair value of a property
• The fair value of investment property shall reflect

market conditions at the balance sheet date
• No depreciation is required in IAS 40
Fair Value Model

Under IAS 40
Fair value has the following attributes:
• Being time-specific as of a given date
• Reflects rental income from current leases and from
future leases in light of current conditions (with
reasonable and supportable assumption)
• Equal to initial cost of a lease
• Current price in an active market being the best
evidence
• Other values when no active market
• Differ from value in use
• Avoid double count assets or liabilities
• Not reflect future capital expenditure
Example
Fair value model (e.g. IAS 40) Revaluation model (e.g. IAS 16)
• Refers to fair value • Refers to fair value
• Change in fair value recognised in • Change in fair value recognised

profit or loss for the period in which directly in equity (or other
it arises comprehensive income)
• No depreciation or amortisation is • Depreciation or amortisation is

required required
• Reflect market conditions at the end • Not clearly defined, only require
of reporting period (i.e. revalued at sufficient regular that no material
each balance sheet date) different from fair value
• N/A • Deficit about fair value below

depreciated or amortised cost is
recognised in profit or loss
6. Transfers
• Introduce transfer section

• Transfers to, or from, investment property shall be made when, and only
when, there is a change in use, evidenced by:
Change in use Transfer from investment property
a) Commencement of owner- Owner-Occupied
occupation Property Investment
b) Commencement of development Inventories
Property
with a view to sale
Change in use Transfer to investment property
a) End of owner-occupation Owner-Occupied
Property
b) Commencement of an operating Inventories
Investment
lease to another party Property
c) End of construction or End of
development construction
Measurement at transfer? Depend on the model the entity is using ……

5. Transfer
• When an entity uses  Cost Model

– transfers DO NOT change the carrying amount of the property
transferred and
– they DO NOT change the cost of that property for measurement or
disclosure purposes.
Measurement at transfer?
5. Transfer
• For a transfer from investment property (i.e. the following cases) carried
at fair value
Fair Value Model
Change in use Transfer from investment property

a) Commencement of owner- Owner-Occupied
occupation Property Investment
b) Commencement of development Inventories
Property
with a view to sale
 the property’s deemed cost for subsequent accounting in accordance

with IAS 16 or IAS 2 shall be its fair value at the date of change in
use.
6. Transfers
• For a transfer to investment property (i.e. the following cases) and that
investment property will be carried at fair value
Fair Value Model
Change in use Transfer to investment property

a) End of owner-occupation Owner-Occupied
Property
b) Commencement of an operating Inventories
Investment
lease to another party Property
c) End of construction or End of
development construction
6. Transfers
• For a transfer to investment property (i.e. the following cases) and that
investment property will be carried at fair value
Fair Value Model
Owner-Occupied Investment
Property Property
 apply IAS 16 up to the date of change in use.  Revaluation reserve is
 treat any difference at that date between its • frozen and
• carrying amount under IAS 16, and • accounted for in
• its fair value accordance with
in the same way as a revaluation under IAS 16 IAS 16 subsequently
Inventories
Investment
End of Property  any difference between
construction • the fair value of the property
at that date and
• its previous carrying amount
shall be recognised in profit/loss
6. Transfers
Example
• GV has adopted IAS 40 and stated its investment

properties at fair value even the properties are held
under operating leases.
• On 1 Mar. 2008, freehold property B stated at
revalued amount of $1 million (originally used as its
own office) has been leased out to derive rental
income.
• Revaluation surplus recognised for B was $300,000
while B’s fair value at that date should be
$1,200,000.
• What is the accounting implication on the decision?
6. Transfers
Example
• Property B would be reclassified as investment property.

• In accordance with IAS 40, GV should apply IAS 16 on B up to the date
of change in use and treat any difference at that date between its
carrying amount under IAS 16, and its fair value in the same way as a
revaluation under IAS 16.
• Thus, a revaluation surplus of $200,000 would be further recognised.
• Total revaluation reserves would become $500,000 ($200,000 + $300,000)
• The revaluation reserves of $500,000 would be frozen and accounted
for in accordance with IAS 16 subsequently.
Dr Property, plant and equipment $200,000
Cr Revaluation reserves $200,000
To recognise the additional revaluation surplus.
Dr Investment property $1,200,000
Cr Property, plant and equipment $1,200,000
To reclassify the property from PPE to investment property.
7. Derecognition (or Disposals)
• An investment property shall be derecognised (eliminated from the

balance sheet):
1. on disposal or
2. when the investment property is permanently withdrawn from use
and no future economic benefits are expected from its disposal
• Gains or losses arising from the retirement or disposal of investment
property shall be determined as the difference between
1. the net disposal proceeds and
2. the carrying amount of the asset,
and shall be recognised in profit or loss (unless IAS 17 requires
otherwise on a sale and leaseback) in the period of the retirement or
disposal
8. Disclosure
a) Disclosure for both Fair Value Model and Cost Model

• whether the fair value model or the cost model is adopted
• if fair value model is applied, whether property interests held under
operating leases are accounted for as investment property
• if classification is difficult, the criteria to distinguish investment property
from owner-occupied property and from property held for sale in the
ordinary course of business
• the methods and significant assumptions applied in determining the fair
value of investment property
• whether (and the extent to which) the fair value of investment property is
based on a valuation by a qualified independent valuer
• the amounts recognised in profit or loss, say for rental income from
investment property, and direct operating expenses (including repairs and
maintenance) arising from investment property
• the existence and amount of restrictions on the realisability of investment
property or the remittance of income and proceeds of disposal
• contractual obligations to purchase, construct, or develop investment
property or for repairs, maintenance or enhancements
8. Disclosure
b) Additional Disclosure for Fair Value Model

• A reconciliation between the carrying amounts of investment property at
the beginning and end of the period similar to that of property, plant and
equipment
• When a valuation obtained for investment property is adjusted
significantly for the purpose of the financial statements, the entity shall
disclose a reconciliation between the valuation obtained and the adjusted
valuation included in the financial statements
• In the exceptional cases when there is inability to determine fair value
reliably and cost model is applied to a particular investment property,
additional disclosures are required
8. Disclosure
c) Additional Disclosure for Cost Model

• the depreciation methods used;
• the useful lives or the depreciation rates used;
• the gross carrying amount and the accumulated depreciation (aggregated
with accumulated impairment losses) at the beginning and end of the period;
• a reconciliation of the carrying amount of investment property at the
beginning and end of the period, similar to that of property, plant and
equipment
• the fair value of investment property
• In the exceptional cases when there is inability to determine fair value
reliably, additional disclosures are required
Chapter 5
Investment Property

05 Investment Property

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

05 Investment Property

Hochgeladen von

Copyright:

Verfügbare Formate

Chapter 5

1. Applicable Standard and Scope

• Investment property should be accounted for by

• Investment property is defined as:

• In order to classify a property as investment

• IAS 40 has contrasted an investment property with

1. The generation of cash flows

• held to earn rentals or for • the production or supply of

2. Extent of Ancillary Services

• To meet the definition of investment property, a

• IAS 40 amended in December 2003 to allow that a

Examples that are NOT investment property include: Which IAS?

• GV Inc. has three properties in Hong Kong and

• Property C meets the definition of investment property under IAS 40 and

• Some properties comprise a portion held as investment property and

Could be sold or leased out separately under a finance lease

Could not be  the property is investment property

Expenditure not fulfilling the recognition Clearer approach on so-called

• An entity is required to initially recognise and measure

Introduce Cost Model and choose either Fair Value Model

• There is a rebuttable presumption that an Fair Value Model

After initial recognition, an entity that chooses  Fair Value Model

Fair Value Model

• Fair value is defined as the amount for which an asset could be

• The fair value of investment property shall reflect

Fair Value Model

• Change in fair value recognised in • Change in fair value recognised

• No depreciation or amortisation is • Depreciation or amortisation is

• N/A • Deficit about fair value below

• Introduce transfer section

Measurement at transfer? Depend on the model the entity is using ……

• When an entity uses  Cost Model

Change in use Transfer from investment property

 the property’s deemed cost for subsequent accounting in accordance

Change in use Transfer to investment property

• GV has adopted IAS 40 and stated its investment

• Property B would be reclassified as investment property.

• An investment property shall be derecognised (eliminated from the

a) Disclosure for both Fair Value Model and Cost Model

b) Additional Disclosure for Fair Value Model

c) Additional Disclosure for Cost Model

Das könnte Ihnen auch gefallen