INVESTMENT

PROPERTY
IAS 40

What will be learn?

What is Investment Property

How is IP recognised & measured
Disclosure of IP

Definition

Non Current Asset

Land or Buildings or both
Entity hold & control over period > 12 months
or held under a finance lease
Earn rental income & /or
Gain from capital appreciation
NOT held as trading stock or used for
producing goods/services

Recognition

Must meet ASSET definition

Resource
Control
Past event
Probable future benefits flow to entity
Cost measured reliably
AND
Investment Property Definition

PPE VS IP

If a property is used for production of goods/services =

PPE
If property used to earn rental income = IP
BUT what if used for both?
If able to identify the part used for own use & part
earning rental income account for them separately as
PPE & IP
If split is not possible need to determine which part is
insignificant, and recognise the entire property as the
significant part.

Example

30 story building is owned in Cape Town. 28

floors are leased out(operating leases with
option to purchase) & 2 floors are used by
the company as head office.
Value per floor has been estimated by a
valuator at 300 000 each

How would we classify this building & at

what amounts?

Solution

There are 2 portions within the building

Since the parts are separable we can

classify them separately

2 floors are owner occupied

28 floors are leased out

Property, Plant & Equipment 600 000

Investment Property 8 400 000

If we were unable to obtain a value per

floor then how would this building be
classified?

Ancillary Services

What are Ancillary Services?

Cleaning, maintenance or security

Need to determine if significant services

or not

If services are insignificant regard the

property as IP

Examples

UKZN Owns 3 buildings

Building 1 leased via an operating lease. Ukzn pays

for the cleaning & maintenance of the Building
Building 2 Leased to UJ, however, UKZN has all the
knowledge therefore they manage this building for a
management fee
Building 3 This is a hotel that they leased to Sun
Group, for fixed monthly rental plus 0.5% share in hotel
profits. Ukzn has no involvement in management
decisions. They just ensure that building maintained to
the standard expected of the Sun Group

How would these buildings be recognised?

Solution

Building 1 Investment Property

Building 2 Property Plant & Equipment

Cleaning services are insignificant

Managing this building involves a
significant service

Building 3 Investment Property

UKZN is passive investor in hotel not part

of management decisions.

Initial Measurement

At current cost PLUS

Transaction cost PLUS
Directly attributable costs PLUS
Professional fees PLUS
Transfer costs

Unusual Initial
Measurements

Deferred Payment

Long Operating Leases

PV the selling price the difference

recorded as interest
Will be discussed in 3rd year

Non Monetary Exchange

Use the FV asset given up OR

FV asset received

Example of deferred
payment

Purchased a block of flats on 01/01/2013

Have agreement with seller that will pay
the amount of 2 million on 31/12/2014
Current market interest rate is 10%
What is the amount we would recognise
the IP in our books?
PV = 1 652893

What would be the journal to process?

DR Investment Property(sofp) 1 652 893

CR Long Term Loan(sofp) 1 652893
(purchase of IP)
The difference between 2 million and 1
652 893 will be recognised as finance cost
for period till payment is made

Subsequent Measurement
Fair Value Model

Measure at FV every year

FV is the market value

No depreciation is recognised

Any increase/decrease in value

gain/loss in SOCI P/L

Journals on page 137 & example on

page 138

No impairment testing

Cost Model

Measure at cost less accum

depreciation & impairment

Treated similar to PPE cost

model

Journals on page 138 & example

on page 139
Need to tested for impairment

Disclosure

Investment property will be found in the following

Accounting Policy note

State measurement model

If at FV significant assumptions used, valuator details

Statement of Financial Position

Non current Assets section

Note to SOFP
Recon

of opening balance, movement and closing balance

Any mortgage or restrictions
If cost model what the FV would have likely been

Disclosure contin

Statement of Profit & loss

In the profit before tax note

Net gain/loss from FV adjustments if FV

model used
Depreciation/impairment if cost model
used
Profit/loss from disposal of IP
Direct operating expenses

Disclosure example

Investment property purchased

01/01/2013 for 1 million. IP carried at FV.
At the year end, 31/12/2013, the IP was
valued at 1,5million by an independent
valuator.

REQUIRED
Disclose all IP in the financials in terms
of IFRS

Disclosure Example

COMPANY NAME
Statement of Financial Positon as at
31/12/2013

ASSETS
Non-Current

Assets

Investment Property

n21

1 500 000

Statement of Profit & Loss and OCI

Other Income (XXX+ 500 000)

XXXXXX

Notes to AFS

2. Accounting Policies

2.1 Investment Property

Investment

Property are land & buildings held to earn rental &

for capital appreciation.
IP is measured at FV

21. Investment Property (FV)

Opening Balance 0
Addition in year 1 000 000
Fair Value Adjustment
500 000
Closing Balance
1 500 000
The IP has been fair valued by suitably qualified &
independent valuator with recent experience in similar
property in similar areas.

Notes to AFS contin

35. Profit before tax

Profit before tax is stated after:

Included in Other income
FV

adjustment on IP
500 000
IP expenses
XXXX
Rental Income from IP
XXXX

What have we learnt?

What investment property is

How to recognise & measure IP
How to disclose IP

Change in TEST time

Test will be from 6pm to 8pm due to load

shedding