1. Mark Fielding-Pritchard
IAS 40 – INVESTMENT PROPERTY
Mark Fielding-Pritchard

2. IAS 40 – INVESTMENT PROPERTY
Investment property (IP): property (land or buildings - or part of a building) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both rather than for:
Use in the production or supply of goods or services or for administrative purposes; or
Sale in the ordinary course of business
Not
Biological assets
Mineral rights and mineral reserves such as oil, natural gas and similar non regenerative resources

3. Definition Does not include assets
Held for administrative or productive use by owner; or
Held for sale
Generates cash flows largely independent of other assets

4. Examples Land held for long-term capital appreciation
Land held for undetermined future use
Building leased under one or more operating leases
Vacant building held to be leased
Building under construction or development as investment property

5. Initial Measurement
Measure initially at cost including transaction costs and directly attributable expenditures (rules similar to IAS 16)

6. Subsequent Measurement
Select either fair value or cost model
Fair value model: changes in fair value are recognised in the income statement
Cost model: but fair value must be disclosed
Rebuttable presumption: Fair value can be determined reliably on a continuing basis
Valuation by a certified independent valuer with relevant experience is encouraged but not required

7. Investment Property - Fair Value
Price at which the property could be exchanged in an arms-length transaction
FV is time specific, dependent upon market conditions at the reporting date
Best measure of fair value is the current price in an active market for similar property (same location & condition)
FV excludes synergies between the property and other properties

8. Consistency of Measurement
If fair value previously used, must continue until there is a change in use:
Owner-occupied, or
Development for sale begins
If fair value is policy, an individual property can be carried at cost if its fair value cannot be reliably measured
Identify at initial recognition

9. Transfers to or from Investment Property
Transfer to, or from, investment property shall be made when, and only when there is a change in use evidenced by:
Commencement lend of owner occupation (transfer to or from Property, Plant and Equipment (IAS 16))
Development with view to sale (transfer to Inventories (IAS 2))
Commencing an operating lease to another party (from IAS 2 or IAS 16)

10. Transfers to or from Investment Property
Transfer to owner-occupied property or inventories, use fair value at date of change in use
Transfer from owner-occupied property to fair value investment property
Apply IAS 16 until change in use
Carrying/fair value difference as revaluation per IAS 16
Transfer from inventories to fair value investment property, recognise gain/ loss in profit or loss

11. Investment Property Held under Operating Lease
Property held under operating lease may be investment property of the lessee
Must meet the definition
Must use fair value model
If classified as investment property, lessee must use finance lease accounting

12. ACCA June 2013 Speculate (i) & (ii)
Investment property is held to generate rent or capital gains.
Owner occupied is to support normal business operations
The accounting treatment is different to reflect the different business reasons why it is held
The treatments are similar with (usually annual) revaluations. Under revaluation model the gain is taken to revaluation reserve whereas for investment properties any gains and losses go through the profit and loss
Revalued owner occupieds are depreciated, investment properties are not

13. Speculate (iii) Property A is an office building so owner occupied.
Note 6 months.
1/4/12- 1/10/2012 depreciate. 6/12 x 2m/20= expense
From 1/10/ = 40 gain
Property B
Full year
1.65m- 1.5m= 0.15m gain
Other comprehensive income will include revaluation reserve movement

14. Speculate (iii) Statement of Financial Position 31/3/13
Investment Properties
A 2.34m
B 1.65m
Revaluation reserve
A 350 ( )