PAS 40 Investment Property
Investment property – is land and/or building held to earn rentals or for capital appreciation or both.
• Only land and building.
• It generates its own cash flows independently from the other assets of an entity and is not:
o Owner-occupied property – classified as PPE
o Held for sale in the ordinary course of business – classified as inventory
o Classified as “held for sale” under PFRS 5 Non-current assets Held for Sale and Discontinued Operations
EXAMPLES OF INVESTMENT PROPERTY:
1. Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.
2. Land held for a currently undetermined future use.
3. A building owned by the entity (or a right-of-use asset relating to a building held by the entity) 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.
PARTLY INVESTMENT AND PARTLY OWNER-OCCUPIED
1. Could be sold or leased out separately, an entity shall account the portion separately as investment property and
owner-occupied property
2. Could not be sold separately, the property is investment property if only an insignificant portion is held for
manufacturing or administrative purposes.
3. When ancillary services are provided by the entity to the occupants of the property and these services are a
relatively insignificant component of the arrangement, it is treated as investment property.
PROPERTY LEASED TO AN AFFLIATE
From the perspective of individual entity that owns it, the property leased to another subsidiary or its parent is
considered an investment property.
From the perspective of the group as a whole and for purposes of consolidated financial statements, the property
is treated as owner-occupied property.
RECOGNITION:
An investment property is recognized when it meets the definition of an investment property as well as the asset
recognition criteria of “probable future economic benefits” and “reliable measurement of cost”
INITIAL MEASUREMENT:
An investment property is initially measured at cost. Transaction cost shall be included in the initial measurement.
ACQUISITION BY PURCHASE:
• The cost of a purchased investment property comprises the purchase price and any direct attributable cost
incurred in bringing the asset to its intended condition.
o Directly attributable expenditure includes professional fees for legal services, property transfer taxes, and
other transaction costs.
• If payment is deferred the cost is the cash price equivalent. The difference between this amount and the total
payment is recognized as interest expense over the credit period, unless it qualifies for capitalization under PAS 23.
• The cost of an investment property excludes the following:
o Start-up cost.
o Operating losses incurred before.
o Abnormal amounts
EXCHANGE OF ASSETS
a. With Commercial Substance – if the entity’s subsequent cash flows are expected to change as a result of the
exchange. The asset received is measured using the following order of priority.
1. Fair value of the asset given up;
2. Fair value of the asset received up;
3. Carrying amount of the asset given up
b. Lacks of Commercial Substance – the asset received is measured at the carrying amount of the asset given up.
Note: No gain or loss arises if the asset received is measured at the carrying amount of the asset given up.
SUBSEQUENT MEASUREMENT
• The entity chooses either the cost model or the fair value model as the accounting policy and shall apply that policy
to all of the investment property.
• Using both models selectively for items of investment property is prohibited, except in the following cases:
1. When the FV model is used but the FV of one investment property cannot be reliably determined in initial
recognition. For purposes of depreciation, the residual value of the said property is assumed to be zero.
2. Separate choice of accounting policy may be made for.
• PAS 40 required an entity to determine the fair value of its investment property, regardless of the accounting policy
used.
• Under FAIR VALUE MODEL: fair value = measurement purposes
• Under COST MODEL: fair value = disclosure purposes
