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IAS 40 Investment Property PowerPoint PPT Presentation


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IAS 40 Investment Property. David Cairns www.cairns.co.uk. Investment Property. Land and/or buildings … held by the owner or lessee under a finance lease … … to earn rentals and/or for capital appreciation … rather than for use or sale in the ordinary course of business.

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IAS 40 Investment Property

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Ias 40 investment property l.jpg

IAS 40 Investment Property

David Cairns

www.cairns.co.uk


Investment property l.jpg

Investment Property

  • Land and/or buildings

  • … held by the owner or lessee under a finance lease …

  • … to earn rentals and/or for capital appreciation …

  • rather than for use or sale in the ordinary course of business

www.cairns.co.uk


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Investment Property

  • Excludes:

    • property held for sale in ordinary course of business (use IAS 2)

    • owner-occupied property (use IAS 16)

    • property under construction or development (use IAS 16)

www.cairns.co.uk


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Leasehold Property

IAS 40

  • property held as lessee under operating lease is not treated as investment property

  • property held as lessee under finance lease may be treated as investment property

    Improvements ED

  • treat investment property held as lessee under operating lease as if held under finance lease provided use fair value model

www.cairns.co.uk


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Leasehold Property

Hongkong Land, Hong Kong/Bermuda

Old IAS 25 approach

‘Investment properties … held under long leases are included in the balance sheet at their then open market value on the basis of an annual independent professional valuation.’

www.cairns.co.uk


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Leasehold Property

Hongkong Land, Hong Kong/Bermuda

IAS 40 approach

‘… leasehold land and buildings are stated at cost after deduction of depreciation and amortisation … ’

www.cairns.co.uk


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Leasehold Property

Hongkong Land, Hong Kong/Bermuda

Improvements ED approach

‘Investment properties … held under long leases are included in the balance sheet at their then open market value on the basis of an annual independent professional valuation.’

www.cairns.co.uk


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Investment Property

  • Recognition, initial measurement, subsequent expenditure

    • all same as IAS 16

    • may capitalise borrowing costs (IAS 23)

  • Subsequent measurement

    • fair value model or

    • cost model

www.cairns.co.uk


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Fair value model

measure at fair value

all gains and losses in income statement

Cost model

measure at cost less depreciation and impairment losses

depreciation and impairment losses in income statement

Investment Property

www.cairns.co.uk


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Fair Value Model

  • Fair value at the balance sheet date

    • link with International Valuation Standards

    • encourages, but does not require, use of independent, professionally qualified valuer

  • Unable to measure fair value reliably

    • cost model

    • only in exceptional circumstances

www.cairns.co.uk


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Fair Value

  • Usually market value

    • most probable price reasonably obtainable in the market at the balance sheet date

    • exclude effects of financing arrangements

  • Do not deduct sale or disposal costs

  • Avoid double counting

    • elevators, air-conditioning

    • prepaid/accrued operating lease income

www.cairns.co.uk


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Fair Value

  • Market state at balance sheet date

    • rental income from current leases

    • market view of future rental income

    • knowledgeable, willing parties

    • after proper marketing

    • arm’s length transaction

www.cairns.co.uk


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Transfers of Investment Property

  • Only when evidence of a change of use

  • Investment property at fair value to owner-occupied or inventory

    • fair value = cost for IAS 16/IAS 2

  • Owner occupied to investment property

    • apply IAS 16 to date of change of use

    • treat change in carrying amount in accordance with IAS 16

www.cairns.co.uk


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Transfers of Investment Property

  • Inventory to investment property at fair value

    • apply IAS 2 to date of change of use

    • include change in carrying amount in income statement

  • Completion of construction or development

    • apply IAS 16/IAS 23 to date of completion

    • include change in carrying amount in income statement

www.cairns.co.uk


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First-time Application of IFRS

  • Exemptions from retrospective application (cost model only)

    • unable to determine cost based measures – use fair value at transition date

    • revaluations based on indexed ‘IFRS comparable’ cost – revalued amounts are IFRS ‘deemed costs’

    • earlier deemed cost based on fair values (e.g. privatisation) – earlier deemed costs are IFRS ‘deemed costs’

www.cairns.co.uk


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IAS 40 Investment Property


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