INVESTMENT PROPERTY

Definitions
Initial recognition
Initial measurement
Subsequent measurement
De recognition disclosure
Tax implications
The scope of investment property is that it shall
be applied in the recognition , measurement and
disclosure of investment property

DEFINITIONS
Carrying amount
It is the amount at which an asset is recognised
in the Statement of financial position.
Cost
It is the amount of cash and cash equivalent paid
or the fair value of other consideration given to
acquire an asset at the time of its acquisition or
construction.
Fair value
Property
Land or building or part of a building or both.

Investment property
Property held (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

Owner occupied property

Property held (by owner or by a lessee under a
finance lease ) for use in the production or supply of
goods and services or for administrative purposes.

EXAMPLES OF INVESTMENT
PROPERTY
Section 8 of IAS 40 gives the examples of
investment property as :
1. land held for long-term capital appreciation
rather than for short-term sale in ordinary
course of business.
2. land held for a currently undetermined future
use. If the entity has not yet determined what it
will use the land for , i.e. either as for short term
sale in the ordinary course of business or as
owner occupied , the land is regarded as held for
capital appreciation.

3. a building owned by the entity ( or held by the

entity under a finance lease ) and leased out
under one or more operating leases.
4. a building that is vacant but is held to be
leased out under one or more operating leases.
5. property that is being constructed or developed
for future use as investment property

Para 9 of IAS 40 gives examples of items that are not

investment property.
1.property intended for sale in the ordinary course of
business or in the process of construction or
development for such sale e.g property acquired
exclusively for sale in the near future or for
development and resale.
2. property being constructed for third parties
3. owner occupied property IAS 16 including
(i) property held for future use as owner occupied
property
(ii) property held for future development and
subsequent use as owner occupied property

(iii) property occupied by employees

(iv) owner-occupied property awaiting disposal
4. property that is being constructed or
developed for future use as investment property
5 property that is leased to another entity under
a finance lease.
Some property comprise a portion that is held as
investment and another portion that is held as
owner occupied. If these portions could be sold
separately or leased out separately under a
finance lease , an entity accounts for these
separately.

If the portions could not be sold separately , the

property is investment property only if an
insignificant portion is held for use in production
or supply of goods or services or for
administration purposes.
In some instances, an entity provides ancillary
service to occupants of a property it holds , for
example security and maintenance services. An
entity treats such a property as investment
property if services are insignificant to the
arrangement as a whole.

In other cases the services provided are

significant , this means this is not investment
property rather it is owner occupied.
In some cases , an entity owns property that is
leased and occupied by, its parent or another
subsidiary. The property does not qualify as
investment property in the consolidated financial
statements , because it is owner occupied in the
perspective of the group, but in individual
accounts it is shown as investment property,

RECOGNITION
Investment property shall be recognised as an
asset only when
1. it is probable that the future economic benefits
that are associated with the investment property
will flow to the entity.
2. the cost of the investment property can be
measured reliable.
The cost will include the cost to initially
acquiring the investment property
Costs incurred subsequently to add to, replace
part of, or service a property

Under this recognition principle an entity does

not recognise in its carrying amount of an
investment property of the day to day servicing.
Rather these costs are recognised in the profit
and loss as they are incurred.

MEASUREMENT
An investment property shall be initially
measured at cost. Transaction costs should be
included in the initial measurement.
The cost of the purchased investment property
comprises its purchase price
and directly
attributable expenditure such as professional fees
for legal services , property transfer taxes and
other transfer costs.
The costs of a self constructed investment
property is its cost at the date when the
construction development is complete. Until this
date the entity applies IAS 16

The cost of investment property is not increased

by start up costs , operating losses and abnormal
amounts of wasted material .
Exchange (swap ) of investment property
One or more investment property may be
acquired in exchange for monetary or nonmonetary asset(s) or a combination of both. The
cost of the acquired investment property is
measured at fair value unless the exchange lacks
commercial substance or the fair value of neither
asset that received nor given up is reliably
measurable.

MEASUREMENT AFTER INITIAL

RECOGNITION
An entity shall choose either the
The fair value model
Cost model
After initial recognition an entity chooses the
cost model or the revaluation model
Under the cost model all of the investment
property is measured cost less accumulated
depreciation and accumulated impairment loss
according to IAS 16.

FAIR VALUE MODEL

After the initial recognition , an entity chooses
the fair value model and it shall measure all its
investment property at fair value except where
there is clear evidence when an entity first
acquires an investment property that the entity
will not be able to determine the fair value of the
investment property reliably on an ongoing basis.
A gain or loss arising from a change in the fair
value of investment shall be recognised in the
profit and loss in which it relates.
The fair value of the property is..

Fair value excludes an estimated inflated price or

deflated by special terms or circumstances. Property
held as lessee under a finance lease , the cost model
is not an elective , it is measured at fair value.
Never depreciate investment property held at fair
value.
Gain
Dr investment property
Cr fair value adjustment
Loss .
Dr fair value adjustment .
Cr investment property

TRANSFERS
Transfers to, or from investment property shall
be made when , and only when , there is a change
in use evidenced by:
1. commencement of owner occupied transfer
from investment property to owner occupied
property.
2. commencement of development with a view to
sale- transfer from investment property to
inventories.
3. end of owner occupation transfer from owner
occupied to investment property.

Transfer when cost model is applied

When an entity uses the cost model, transfer
between investment property, owner occupied
property and inventories, do not change the
carrying amount of the property transferred or
the cost of that property for measurement or
disclosure purposes.

TRANSFER WHEN FAIR VALUE IS

USED
For a transfer from investment property carried at
fair value to owner occupied property or
inventories, the property s deemed for subsequent
accounting in accordance to IAS 16 or IAS 2 shall
be its fair value at the date of change in use.
If an owner occupied property becomes an
investment property that will carried at fair
value , an entity shall apply IAS 16 up to date of
change in use. The entity shall treat any difference
at the date between the carrying amount of
property in accordance with IAS 16 and its fair
value in the same way as a revaluation in
accordance with IAS 16.

Up to the date that the owner occupied property

becomes an investment property carried at fair ,
an entity depreciates the property and recognises
an impairment loss that have occurred.
For a transfer from inventories to investment
property that will be carried at fair value, any
difference between the fair value of the property
at that date and its previous carrying amount
shall be recognised in the profit and loss.

DERECOGNITION

An investment property shall be derecognised

from the SFP on disposal or change change in use

DISCLOSURE
An entity shall disclose:
1. Whether it applies the fair value or the cost
model.
2. if it applies the fair value model , whether and
in what circumstances , property interests held
under operating leases are classified and
accounted for as investment property.
3. the methods and significant assumptions
applied in determining the fair value of
investment property.

4. the amounts recognised in profit or loss for

Rental income from investment property
Direct operating expenses (including repairs and
maintenance ) arising from investment property
that generated rental income during that period.
Direct operating expenses (including repairs and
maintenance ) arising from investment property
that did not generate rental income during that
period
5. existence and amount of restrictions on the
feasibility of investment property or the
remittance of income and proceeds of disposal.

FAIR VALUE MODEL

In addition to the above disclosures the following
should also be shown: a reconciliation between the
carrying amounts of investment property at the
beginning and end of the period showing
1. additions , disclosing separately those additions
resulting from acquisitions and those resulting from
subsequent expenditure recognised in the carrying
amount.
2. assets classified as held for sale
3. net gains or losses from fair value adjustments;
4. transfers to and from inventories and owner
occupied property
5. any other changes.

An entity shall disclose

1. a description of the investment property
2. an explanation of why fair value cannot be
determined reliably
3.

COST MODEL

Disclosures as in IAS 16.