PAS 40 INVESTMENT PROPERTY
I.
NATURE
PAS 40 prescribes the accounting and disclosure requirements for investments
property.
Investment Property - is land and/or building held to earn rentals or for capital
appreciation or both.
Investment property includes only land and building. It does not include any other type
of asset.
PAS 40 requires an entity to determine the fair value of the investment property,
regardless of the accounting policy used. Under the fair value model, fair value is used
for measurement purposes while under the cost model, fair value is used for disclosure
purposes.
PAS 40 encourages, but does not require, the use of an independent valuer in
determining the fair value of an investment property.
II.
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”.
Derecognition
An investment property is derecognized when it is disposed of or when no future
economic benefits are expected from it.
On derecognition, the difference between the carrying amount and the net disposal
proceeds, if any, is recognized as gain or loss in profit or loss (unless PFRS 16 leases
requires otherwise on a sale and leaseback).
III.
MEASUREMENT
Initial Measurement:
An investment property is initially measured at cost. The measurement of cost depends
on the mode of acquisition.
 Mode 1: Acquisition by purchase – the cost of a purchased investment
property comprises the purchase price and any directly attributable costs
incurred in bringing the asset to its intended condition.
 Mode 2: Exchanges of assets – the measurement of an investment property
acquired in exchange for another non-monetary asset depends on whether the
exchange transaction has commercial substance or not.
Subsequent measurement:
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After initial recognition, an entity chooses either the cost model or the fair value model
as its accounting policy and applies that policy to all of its investment property.
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Only one model shall be used. Using both models selectively for items of investment
property is prohibited.
IV.
TRANSACTION
a. Land held for long-term capital appreciation rather than for short-term in the
ordinary course of business.
b. Land held for a currently undetermined future use.
c. 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.
d. A building that is vacant but is held to be leased out under one or more operating
leases.
e. Property that is being constructed or developed for future use as investment
property.
V.
PRESENTATION
A property that is leased by a member of a group to another member (parent or
subsidiary) does not qualify as investment property in the consolidated financial
statements because, from the group’s perspective, the property is owner-occupied.
However, the property is classified as investment property in the lessor/owner’s
individual financial statements.
VI.
DISCLOSURE
General disclosure:
a. Whether the entity uses the fair value model or the cost model.
b. When classification is difficult, the criteria used to distinguish investment property
from PPE and inventory.
c. The extent to which the fair value of investment property is based on a valuation
by an independent valuer. If an independent valuation is not obtained, that fact is
disclosed.
d. The amounts recognized in profit or loss for rental income and related expenses.
e. The existence and amounts of restrictions on investment property.
f. Contractual obligations to purchase, construct or develop investment property or
for repairs, maintenance or enhancements.
Additional disclosures under the fair value model:
a. Reconciliation showing increases and decreases in investment property.
b. When a valuation obtained for investment property is adjusted to avoid doublecounting of assets or liabilities that are recognized as separate assets and
liabilities, the entity discloses a reconciliation between the valuation obtained and
the adjusted valuation.
c. Disclosure of any investment property whose fair value on initial recognition
cannot be reliably measured and hence measured under the cost model using
the exception allowed under PAS 40.
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