IAS 40 | Investment Property

1

Objective

The objective is to prescribe the accounting treatment for investment property and related disclosure requirements.

2

Scope

This Standard applies to the recognition, measurement, and disclosure of investment property.

4

Exclusions

It does not apply to biological assets related to agricultural activity (IAS 41) or mineral rights and reserves (oil, natural gas, etc.).

5

Definitions

The following terms are used in this Standard with the meanings specified:

• Carrying amount: The amount at which an asset is recognised in the statement of financial position.
• Cost: The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based Payment.
• Fair value: 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.
• Investment property: Property (land or a building-or part of a building- or both) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business.
• Owner-occupied property: Property held (by the owner or by the lessee as a right-of-use asset) for use in the production or supply of goods or services or for administrative purposes.

7

Nature of Investment Property

Investment property generates cash flows largely independently of other assets held by an entity. This distinguishes it from owner-occupied property, where cash flows are attributable not only to the property but also to other assets used in production or supply.

8

Examples

Examples include: land held for long-term capital appreciation; land held for undetermined future use; a building owned (or right-of-use asset) and leased out under operating leases; a vacant building held to be leased out; and property being constructed/developed for future use as investment property.

9

Non-Investment Property

Examples of items that are not investment property: property held for sale in the ordinary course of business (inventory); owner-occupied property (including future use as such, or occupied by employees); and property leased to another entity under a finance lease.

10

Partial Use

Some properties comprise a portion held to earn rentals/capital appreciation and another portion for owner-occupation. If these portions can be sold separately, they are accounted for separately. If not, the property is investment property only if an insignificant portion is held for owner-occupation.

11

Ancillary Services

If an entity provides ancillary services (e.g., security) to occupants and they are insignificant, the property is investment property. If services are significant (e.g., owner-managed hotel), it is owner-occupied property.

13

Subsidiary Occupation

Property leased to and occupied by a parent or subsidiary is owner-occupied from the group perspective (consolidated statements) but is investment property in the lessor's individual financial statement.

14

Judgement

Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria to exercise that judgement consistently.

16

Recognition

Investment property is recognised as an asset when: (a) it is probable that future economic benefits will flow to the entity; and (b) the cost can be measured reliably.

20

Initial Measurement

Investment property is measured initially at cost. Transaction costs are included in the initial measurement.

21

Purchased Cost

Cost comprises purchase price and directly attributable expenditure (e.g., professional fees, transfer taxes).

23

Excluded Costs

Cost is not increased by start-up costs (unless necessary to bring to condition), operating losses before occupancy, or abnormal waste during construction.

27

Exchange of Assets

Investment property acquired in exchange for non-monetary assets is measured at fair value unless the transaction lacks commercial substance or fair value is not reliably measurable. If not at fair value, cost is the carrying amount of the asset given up.

30

Accounting Policy

An entity chooses either the fair value model or the cost model as its accounting policy and applies it to all its investment property.

32A

Exceptions

An entity may choose the fair value or cost model for all investment property backing liabilities that pay a return linked directly to the fair value of specified assets, regardless of the choice for other investment property.

33

Fair Value Model

After initial recognition, an entity choosing this model measures all investment property at fair value.

35

Gains/Losses

A gain or loss arising from a change in the fair value of investment property is recognised in profit or loss for the period in which it arises.

40

Fair Value Measurement

Fair value should reflect rental income from current leases and other assumptions market participants would use.

40A

Lessee Measurement

When a lessee uses the fair value model for a right-of-use asset, it measures the right-of-use asset at fair value, not the underlying property.

50

Double Counting

In determining carrying amount under the fair value model, assets/liabilities recognised separately (e.g., lifts, furniture, prepaid lease income) are not double-counted.

53

Inability to Measure

There is a rebuttable presumption that fair value can be reliably measured. In exceptional cases where it cannot be measured reliably on a continuing basis, the entity measures that specific property using the cost model (IAS 16) until disposal. The residual value is assumed to be zero.

55

Continuing Fair Value

If an entity has previously measured an investment property at fair value, it continues to do so until disposal or change in use, even if market transactions become less frequent.

56

Cost Model

After initial recognition, an entity choosing the cost model measures investment property in accordance with IAS 16 (or IFRS 16 for right-of-use assets), unless it is held for sale (IFRS 5).

57

Transfers

Transfers to or from investment property are made when, and only when, there is a change in use evidenced by: (a) commencement of owner-occupation (transfer to owner-occupied); (b) commencement of development for sale (transfer to inventory); (c) end of owner-occupation (transfer from owner-occupied); or (d) inception of an operating lease to another party (transfer from inventory).

60

Transfer Measurement

For transfers from investment property carried at fair value to owner-occupied property or inventories, the deemed cost for subsequent accounting is its fair value at the date of change in use.

61

Owner-Occupied to Investment

If owner-occupied property becomes investment property carried at fair value, the entity applies IAS 16 up to the date of change. Any difference between carrying amount and fair value at that date is treated as a revaluation (increase to OCI/revaluation surplus; decrease to profit or loss).

66

Disposals

Investment property is derecognised on disposal or when permanently withdrawn from use and no future benefits are expected.

69

Gain/Loss on Disposal

Gains or losses on disposal are determined as the difference between net disposal proceeds and the carrying amount and are recognised in profit or loss.

75

General Disclosures

Disclosures include: whether fair value or cost model applies; criteria for classification; amounts recognised in profit or loss (rental income, operating expenses); and existence of restrictions.

76

Fair Value Disclosures

Entities using the fair value model must disclose a reconciliation of carrying amounts at the beginning and end of the period (additions, disposals, fair value adjustments, transfers).

79

Cost Model Disclosures

Entities using the cost model must disclose: depreciation methods; useful lives/rates; gross carrying amount and accumulated depreciation; reconciliation of carrying amount; and the fair value of the investment property (where reliable measurement is possible).

85

Effective Date

The Standard applies for annual periods beginning on or after 1 January 2005.