1. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Definitions
Investment property is defined by IAS 40 as land or a building held to earn rentals or for capital appreciation or both, rather than for use in the enterprise or for sale in the ordinary course of business.

2. Question
Rich Co owns a piece of land. The directors have not yet decided whether to build a factory on it for use in its business or to keep it and sell it when its value has risen. Would this be classified as an investment property under IAS 40?
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3. Answer
Yes. If an entity has not determined that it will use the land either as an owner-occupied property or for short-term sale in the ordinary course of business, the land is considered to be held for capital Appreciation.
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4. Type of non-investment property Applicable IAS
Property intended for sale in the ordinary course of business
IAS 2 Inventories
Property being constructed or developed on behalf on third parties
IAS 11 Construction contract
Owner-occupied property
IAS 16 Property, plant and equipment
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5. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Measurement
Investment properties should initially be measured at cost, including transaction costs.
IAS 40 then gives a choice between following a cost model or a fair value model.
Under the cost model the asset should be accounted for in line with the benchmark treatment laid out in IAS 16
Under the fair value model the asset is revalued to fair value at the end of each year. The change in fair value (gain or loss) will then be shown directly in the income statement (not in the revaluation surplus as under IAS 16)

6. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Measurement
Fair value is normally established by reference to current prices on an active market for properties of in the same location and condition. In the absence of such a market the following may be used:
1) current prices on an active market for properties of a different nature, condition or location, adjusted to reflect those differences
2) recent prices on less active markets
3) discounted cash flow projections based on reliable estimate of future cash flow.
If it is not possible to obtain a reliable fair value the cost based model should be used.
Whichever approach is taken, the policy must be applied consistently

7. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Measurement
Transfer there is a change of use. Four possibilities
1) Transfer from investment property (at fair value) to owner occupied property ----Use the fair value at the date of change
2)Transfer from investment property (at fair value) to inventory
Use the fair value at the date of change
3) Transfer from owner-occupied property to investment property
4) Transfer from inventory to investment property
To be carried at fair value– any difference between fair value at the date of the transfer and its previous carrying amount should be recognized in the income statement.

8. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Accounting Treatment
Disposals
Gains or losses on the disposal of investment propertied should be determined as the difference between net disposal proceeds and the carrying amount of the asset. They will be recognized in the income statement unless IAS 17 Leases require otherwise on a sale and leaseback.
Update: Now IAS allows property held under an operating lease to be accounted for as an investment property subject to certain conditions.

9. Topic 1 Tangible Non-current Assets
IAS 40 Accounting for Investment Properties
Example:
A business owns a building which it has been using as a head office. In
order to reduce costs, on 30 June 20X9 it moved its
head office functions to one of its production centres and is
now letting out its head office. Company policy is to use the
fair value model for investment property.
The building had an original cost on 1 January 20X0 of
$250,000 and was being depreciated over 50 years. . At 30
June 20X9 its fair value was judged to be $350,000. At 31
December 20X9 its fair value was judged to be $380,000.
How will this appear in the financial statements at 31December 20X9?

10. Solution
The building will be depreciated up to 30 June 20X $ Original cost ,000 Depreciation (45,000) Depreciation to (2,500) Carrying amount at ,500 Revaluation surplus ,500 Fair value at ,000
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