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IAS 40 – INVESTMENT PROPERTY
Mark Fielding-Pritchard
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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

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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
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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
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Initial Measurement

Measure initially at cost including transaction costs
and directly attributable expenditures (rules similar
to IAS 16)
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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
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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
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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

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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)
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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
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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
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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
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= 50000
expense
From 1/10/12 2340-2300= 40 gain
Property B
Full year
1.65m- 1.5m= 0.15m gain
Other comprehensive income will include revaluation
reserve movement
Speculate (iii)

Statement of Financial Position 31/3/13

Investment Properties

A 2.34m

B 1.65m

Revaluation reserve

A 350 (2300- 2000-50)