IAS 40 Investment Property JOIN KHALID AZIZ COACHING CLASSES ICMAP STAGE 1,2,3,4,5 ICAP MODULE A,B,C,D PIPFA BBA & MBA B.COM & M.COM ACCOUNTING OF O/A LEVEL MA-ECONOMICS KARACHI, PAKISTAN

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

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)

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

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

Investment Property 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

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

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

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

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

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

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’