IAS 40

INVESTMENT PROPERTY

This material is the property of Department of Accounting and Finance, CoBE, AAU.
Permission must be obtained from the Department prior to reproduction 1
100 General Principles
200 Presentation
300 Assets
400 Liabilities
500 Equity
600 Revenue
700 Expenses
800 Broad Transactions
900 Industry

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100 General Principles
105 Generally Accepted Accounting Principles
200 Presentation
205 Presentation of Financial Statements
210 Balance Sheet
215 Statement of Shareholder Equity
220 Comprehensive Income
225 Income Statement
230 Statement of Cash Flows
235 Notes to Financial Statements
250 Accounting Changes and Error Corrections
255 Changing Prices
260 Earnings Per Share
270 Interim Reporting
272 Limited Liability Entities
274 Personal Financial Statements
275 Risks and Uncertainties
280 Segment Reporting
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300: Assets
305 Cash and Cash Equivalents
310 Receivables

320 Investments - Debt and Equity Securities

321 Investments - Equity securities

323 Investments - Equity Method and Joint Ventures

325 Investments - Other

326 Financial Instruments - Credit Losses
330 Inventory
340 Deferred Costs and Other Assets
350 Intangibles - Goodwill and Other
360 Property, Plant, and Equipment 4
400: Liabilities
405 Liabilities
Asset Retirement and Environmental
410
Obligations
420 Exit or Disposal Cost Obligations
430 Deferred Revenue
440 Commitments
450 Contingencies
460 Guarantees
470 Debt
480 Distinguishing Liabilities from Equity
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500 Equity
505 Equity

600 Revenue
605 Revenue Recognition

Revenue from Contracts with

606
Custom

610 Other Income

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700 Expenses
705 Cost of Sales and Services
710 Compensation - General
Compensation - Nonretirement Poste
712
Benefits
715 Compensation - Retirement Benefits
718 Compensation - Stock Compensation
720 Other Expenses
730 Research and Development
740 Income Taxes
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800 Broad Transactions
805 Business Combinations
808 Collaborative Arrangements
810 Consolidation
815 Derivatives and Hedging
820 Fair Value Measurements
825 Financial Instruments
830 Foreign Currency Matters
835 Interest
840 Leases
842 Leases
845 Nonmonetary Transactions
850 Related Party Disclosures
852 Reorganizations
853 Service Concession Arrangements
855 Subsequent Events
860 Transfers and Servicing 8
900 Industry
905Agriculture
908 Airlines
910 Contractors - Construction

912 Contractors - Federal Government

915 Development Stage Entities

920 Entertainment - Broadcasters

922 Entertainment - Cable Television

924 Entertainment - Casinos

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926Entertainment - Films
928Entertainment - Music
930Extractive Activities - Mining
932Extractive Activities - Oil and Gas
940Financial Services - Broker and Dealers
942Financial Services - Depository and Lending
944Financial Services - Insurance
946Financial Services - Investment Companies
948Financial Services - Mortgage Banking
950Financial Services - Title Plant
952Franchisors
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954 Health Care Entities
958 Not-for-Profit Entities
960 Plan Accounting - Defined Benefit Pension
Plan Accounting - Defined Contribution
962
Pension
965 Plan Accounting - Health and Welfare Ben
970 Real Estate - General
972 Real Estate – Common Interest
974 Real Estate - Real Estate Investment Trust
976Real Estate - Retail Land
978 Real Estate - Time-Sharing Activities
980 Regulated Operations
985 Software
995 US Steamship Entities 11
ASC section list
5 Overview and Background

10 Objectives

15 Scope and Scope Exceptions

20 Glossary

25 Recognition

30 Initial Measurement

35 Subsequent Measurement

40 Derecognition
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45Other Presentation Matters

50 Disclosure

55Implementation Guidance and Illustrations

60Relationships

65Transition and Open Effective Date Inform

70Grandfathered Guidance

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 IAS 40

INVESTMENT PROPERTY

This material is the property of Department of Accounting and Finance, CoBE, AAU.
Permission must be obtained from the Department prior to reproduction 14
15
 RELEVANT STANDARDS

Topic List Standards

Property, plant and equipment IAS 16
Inventory IAS 2
Fair Value IFRS 13
Impairment IAS 36
Lease IFRS16

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 DEFINITION OF INVESTMENT PROPERTY

Investment property is:

1. property (land, building, part of a building, or both)
2. held (by the owner or by the lessee under a finance lease/leased
under a finance lease)
3. to earn rentals or for capital appreciation or both, rather than
for:
• use in production or supply of goods or services (not owner-
occupied)
• administrative purposes (not owner-occupied)
• sale in the ordinary course of business (not inventory).

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 Proper
Classification of property IFRS

1. Is the property being held (or being constructed) for use in the
production or supply of goods or services, for rental to others, or for IAS 16
administrative purposes?
Is the building owned by the entity (or held under a finance lease) and
leased out under one or more operating leases?
Is the building vacant but held to be leased out under one or more
2. operating leases? IAS 40

Is the property being constructed by the entity for future use as

investment property?
Is the property being held (or being constructed) for sale in the
3. ordinary course of business? IAS 2

A building constructed but the company has not decided the purpose for
IAS 40
which the asset is held.
 Property held for more than one purpose
5. Is a portion of the property being held for investment purposes and another
portion being held for use in the production or supply of goods or services or
for administrative purposes?

• Can the portions be sold separately (or leased separately under a Apply IAS
finance lease)? 16/ 40 to
relevant
portion

• Where the portions cannot be sold separately, is the portion being

held for use in the production or supply of goods or services or for
administrative purposes significant? IAS 16

• Where the portions cannot be sold separately, is the portion being

held for use in the production or supply of goods or services or for
administrative purposes insignificant? IAS 40
 Ancillary services and group issues
7. Does the entity provides ancillary services to the occupants of a
property it holds?

• If the services are insignificant to the arrangement as a

whole. IAS 40

• If the services are significant to the arrangement as a

whole. IAS 16

Intracompany rentals: Property rented to a parent,

8 subsidiary, or fellow subsidiary is not investment property
in consolidated financial statements
Cases - Classification of property

Situation Classification

Entity A acquires a land for long term appreciation. Investment

What is the classification of the land? property

Entity B finished the construction of a 20 story building for Inventory

sale in the ordinary course of business. However, since
there is a recession in the selling property market, Entity B
decides to rent the flats for a short term until changes in
the property market will occur.
What is the classification of the building?

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Cases - Classification of property
Situation Classification
Entity A owns a 10 floor office block. 6 floors-
It uses 4 floors as its headquarters offices. Investment property
The remaining 6 floors are leased out to tenants. 4 floors-
Under the laws in A's country, A is able to sell or PP&E
lease out under finance lease each one of the
floors separately

Entity B owns a 10 floor office block. Investment Property

It uses 4 floors for its headquarters offices.
The remaining 6 floors are leased out under
operating lease to tenants.
Under the laws in B's country, B is not able to
sell or lease out under finance lease each one of
the floors. It can sell or lease out under finance
lease the whole building as a whole 22
Cases - Classification of property
Situation Classification
Entity A owns a 20-story hotel in Addis City whereby Investment property
the hotel management services and provision of
those services are outsourced entirely to a third-
party vendor

Entity B owns a 10-storey office block and leases out Investment property
each floor to tenants under operating leases. Entity B
also provides cleaning services for the lessees of the
building

Entity C owns a 10-storey office block. It rents out PP&E

fully furnished offices under short-term agreements,
which include a range of secretarial services and
IT systems

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Initial Recognition & Measurement IP
Recognition
 Investment property should be recognized as an asset when two

conditions are met.

 It is probable that the future economic benefits that are
associated with IP will flow to the entity.
 The cost of the investment property can be measured reliably.

Initial measurement
 An investment property should be measured initially at its cost,
including transaction costs.
 Leased investment property is measured according to IFRS 16
Leases

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 Measurement at initial recognition
OWNED

'cost' of
purchase transaction the
price costs investment
property

The lower of:

LEASED

1. fair value of the 'cost' of

property interest initial
the
2. present value of direct
investment
costs
the minimum lease property
payments
Subsequent Measurement

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 Subsequent Measurement

 After initial recognition, an entity has a choice of methods to

account for investment property:

 Fair value model (FVM), or

 Cost model (CM)

 Must apply one model to all of its investment property

 It should not change from one model to the other unless the change
will result in a more appropriate presentation.

 It is highly unlikely that a change from the FV model to the CM will

result in a more appropriate presentation.
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Fair value is the price that would be
received to sell an asset or paid to
transfer a liability in an orderly
transaction between market
participants at the measurement date
[IFRS 13].

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 Subsequent Measurement
Fair value model (FVM):

- Assets are measured at fair value

- Changes in fair value are recognized in profit or loss in

period of change; i.e. revaluations to P&L [FVTPL]

- No depreciation is recorded

- Fair values continue to be used even if difficult to

measure reliably

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 Subsequent Measurement
The cost model

- Applies cost model described in IAS 16

- Assets reported at cost less accumulated

depreciation and accumulated impairment losses

- Depreciation expense recognized each period

- Disclose the fair value of IP

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 Case – Measurement after Recognition

Investment property is acquired August 11, 2008, at a cost of

Br200.

Fair values:

December 31, 2008 - Br190

December 31, 2009 - Br198

December 31, 2010 - Br205

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 Case – Measurement after Recognition
FVM example:

Dec.31/08 Loss in value 10

Investment property 10

Dec.31/09 Investment property 8

Gain in value 8

Dec.31/10 Investment property 7

Gain in value 7

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IAS 40 - Transfers

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 Transfers: When

Investment
property
(IAS 40)

Owner- Inventories
occupied (IAS 2)
(IAS 16)
 Case- Transfers
 Entity A purchased a 500-acre plot of land on 1 January
2013 and it plans to meet with the Board on 30 June 2013
to decide what to do with the land
 on 30 June 2013, Entity A decides to construct a shopping
mall whereby it will rent out the various plots of land under
operating leases to retailers
 Entity A determines that it will take another 12 months to
obtain the construction permits, so it will begin construction
on 1 July 2014. In the meantime, it decides to farm the
premium ground to harvest corn.
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 Case- Transfers

Does Entity A meet any of the transfer criteria under IAS 40

requiring it to transfer either to or from investment property? If

so, when are the transfers triggered and

what is the accounting at each transfer date?

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 Transfers
Situation

1 Jan 2013 31 Dec 2013 31 Dec 2014

30 June 2013 30 June 2014

vacant / farming construction

undecided

IAS 40 IAS 16 IAS 40

 Case- Transfers

Case
 A Corporation owns a building which it has been using as a
head office. In order to reduce costs, on 30 June 20X9 it
moved its head office functions to one of its production
centers and is now letting out its head office. Company policy
is to use the fair value model for investment property. The
building had an original cost on 1 January 20X0 of ETB 250,000
and was being depreciated over 50 years. At 30 June 20X9 its
fair value was judged to be ETB350,000.
Required
How will this appear in the financial statements at 31 December
20X9?
The building will be depreciated up to 30 June 20X9.
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 Case- Transfers
 Original cost----------------------------------------------------250,000
 Depreciation 1.1.X0 – 1.1.X9 (250/50 × 9) --------------(45,000)
 Depreciation to 30.6.X9 (250/50 × 6/12) ----------------(2,500)
 Carrying amount at 30.6.X9--------------------------------202,500
 Revaluation surplus------------------------------------------147,500
 Fair value at 30.6.X9-----------------------------------------350,000
 The difference between the carrying amount and fair value is taken
to a revaluation surplus in accordance with IAS 16. However the
building will be subjected to a fair value exercise at each year end
and these gains or losses will go to profit or loss. If at the end of the
following year the fair value of the building is found to be
Br380,000, Br 30,000 will be credited to profit or loss.

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 IAS 40 - Derecognition

Derecognize investment property

 On disposal – when sold or transferred under
a finance lease, or
 On retirement – when permanently removed

from use and no benefits are expected from

its disposal
 Gains and losses on disposal generally
recognized in profit or loss

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IAS 40 - Derecognition

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 IAS 40 - Disclosures
General disclosures:

 whether the FVM or the CM is applied

 criteria used to distinguish between owner-occupied investment
property and property held for sale where judgment is needed
 methods and assumptions underlying fair value measurements,
including extent to which market-related evidence is used
 extent to which the fair values were determined by an
experienced, professional, and independent appraiser
 existence of restrictions and contractual obligations related to
the properties
 amounts and specific types of income and expense recognized
in profit or loss

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Summary

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Many Thanks!
Questions
&
Comments

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