ias 40 investment property
TRANSCRIPT
05/03/2023IAS 40 Investment Property2
OBJECTIVE & SCOPERecognition, measurement & disclosure Matters excluded Investment property Investment property
under finance lease in lesee’s FS
Investment property under operating lease in lessor’s FS
Classification of leases Lease income from
investment property Operating leases in lessee’s
financial statements Finance lease in lessor’s FS Sale and leaseback
transactions Disclosure of finance and
operating leases Biological assets Mineral rights and reserves
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Definitions•Amount recognised in balance sheet
Carrying amount
•Amount paid or fair value of consideration to acquire asset•Amount recognised in accordance with another IFRSCost•Amount for which asset could be exchanged at arm’s length between knowledgeable, willing parties
Fair Value
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Definitions
•Property held for rent or capital appreciation•Not for sale or use in production
Investment
property•Property held for production, supply of goods & services or administrative services (IAS 16)
Owner occupied property
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Classification alternativeLessee must recognise all investment property at fair value and fair value disclosures made
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Examples of investment property
Investment Property
Not investment property
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Combinations and ancillary services
Investment
Property
•Insignificant portion used for production/admin•Insignificant ancillary services e.g. maintenance & securityOwner
Occupied
Property
•Significant portion used for production /sales/admin•Significant ancillary services e.g. owner managed hotelSeparat
e portion
s
•Investment and owner-occupied portion can be sold separately•Account for them separately
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RecognitionProbable future
economic benefit
Cost can be measured
reliably
Recognise investment
property asset
Costs to acquire property
Costs to add or replace parts of
property
Exclude costs of daily
servicing
Expense as repairs and
maintenance
Derecognised carrying value of parts replaced
Recognise replacement parts
as part of asset when incurred
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Measurement at recognition
Measure at cost including
transaction costs
Purchase price
Direct expenditur
e
Deferred cash price equivalent
(interest expensed)
Costs when construction complete
Legal fees
Property transfer taxes
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Exclude from cost at recognitionStart up costs
Operating losses before planned level of occupancy
Abnormal waste or development expenditure
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Investment property held under a lease
Lower of FV and PV of minimum lease
paymentsAsset
Include premium paid for lease
LiabilityExclude premium paid for
lease
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Investment property exchanged for another assetFair value of asset given up unless FV of asset received more clearly evident
Carrying value of asset given up
Fair value can be
measured reliably
Able to assess
probabilities
Range of estimated values similar
Fair value
Lacks commercial substance
Significant change in value
of operations affected
Change in risk , timing and
amount of post tax cash flows
Not reliably measurable
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Measurement after recognition: Accounting Policy
Choose and apply to all investment property
Fair Value Model
Recognise gain or loss in P&L of each period
Change from FV to cost model not appropriate
Cost Model
Disclose FV (professional valuation recommended)
Rebuttable presumption that FV can be measured or residual value must be zero
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Fair ValuePrice between knowledgeable
willing parties in arms length transaction
Exclude special financing
terms
Include disposal
costs
Reflect market conditions at balance sheet
date
Include rental income and
similar outflows
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Fair Value Model Measure all investment properties at fair value Investment under operating lease may not be measured at cost
after initial recognition; it must be measured at fair value Recognise gains and losses from changes in fair value in the
profit and loss account until disposal Once held for sale, measure investment property according to
IFRS 5 Fair value must reflect market conditions at the balance sheet
date Current prices in active market for similar property in same location and
condition under similar lease or other contract Current/recent prices adjusted to reflect differences
If reasonable estimate of fair value not available for a particular property, use IAS 16 cost model in exceptional cases Residual value must be zero Apply IAS 16 cost model until disposal
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Transfers to and from investment propertyowner-occupation
(fair value at date of change in
use)
Commence operating
lease to 3rd party
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Disposals Derecognise from balance sheet when no
future economic benefit expected Net disposal proceeds – carrying amount =
profit/loss in period of disposal Ias 17 for sale and leaseback Recognise compensation for impairment or
loss in profit & loss when receivable
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Disclosure: Fair Value Model & Cost Model•Whether fair value or cost model applied•Reasons for classifying property under operating lease as investment propertyModel
•Criteria to distinguish owner-occupied from investment property•Methods and assumptions to calculate fair value•Market evidence to support fair value•Whether or not a professional valuation was obtained
Value•Restrictions on realisability (existence and amounts)•Contractual obligations to develop, repair, maintain or enhance investment property
Obligations
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Disclosure: Fair Value Model and Cost Model
•Rental income•Direct operating expenses relating to rental income•Direct operating expenses not related to rental income•Cumulative change in fair value from sale of asset at cost to fair value pools
Amounts in profit or loss
•Reconciliation between carrying amounts at beginning and end of period•Reconciliation between valuation obtained and valuation included in financial statements (if adjusted)
Fair value model
•Description of investment property•Reason why fair value cannot be determined•Range of estimates in which fair value is likely to fall•Disposal of investment property not carried at fair value (carrying amount and recognised gain or loss)
Cost model
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Cost model: Additional disclosure Depreciation methods used Useful lives Gross carrying amount Accumulated depreciation and impairment loss at beginning and end of
period Reconciliation of carrying amount at beginning and end of period Additions
From subsequent expenditure From acquisitions
Assets classified as held for sale Depreciation Impairment loss recognised and reversed Net exchange differences on translation Transfers to and from inventories and owner-occupied property Fair value of investment property or
Description of property Reason why fair value cannot be determined Range of estimates in which fair value is likely to lie
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Fair value model: Additional disclosure Reconciliation between carrying amount at
beginning and end of period Additions
From acquisition From subsequent expenditure From acquisitions through business combinations
Assets classified as held for sale Net gain or loss from fair value adjustments Net exchange difference on translation Transfer to and from inventories and owner-
occupied property Other changes
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Transitional provisions Apply initial measurement in exchange of assets
prospectively to future transactions only. Entity elects for the first time to classify all eligible
property under operating lease as investment property Adjust opening balance of retained earnings in period
election first made If no fair value previously disclosed, do not adjust opening
balance of retained earnings for earlier period or restate comparatives
If fair value previously disclosed, encouraged but not required to: Adjust opening balance of retained earnings for earliest period
presented Restate comparative information for those periods
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Summary Investment property is held for rent or capital appreciation Measure initially at cost including transactions costs Choose fair value or cost model after initial recognition and
apply to all properties Recognise all investment property under operating lease at
fair value after recognition Recognise changes in fair value in profit & loss for the period Classify according to IFRS 5 once held for sale Transfer when investment property becomes owner-
occupied or used in another way Derecognise when disposed and recognise profit or loss on
disposal Make detailed disclosures and reconciliations of opening and
closing carrying values