Investment Properties

• An investment property is a property held to earn rentals or for capital appreciation or both, rather than for use in production or sale in the ordinary course of business.
• Only land and building can qualify as an investment property
• Building owned by an entity leased out under an operating lease is an example of investment property.
• An example of investment property is land held for currently undetermined use.
• Property held for future use as owner-occupied property is not considered as investment property.
• Property occupied by employees, regardless they pay rent or not, is not an investment property.
• In the case that a property is separable based on its function, account for the investment property for the said portion.
• If the property is non-separable, account for the property as investment property only if an insignificant portion is held for production or administrative purposes.
• The property is accounted for as an investment property if the ancillary or support services is only an insignificant component of the arrangement.
• If the ancillary service is a significant component of the arrangement, it shall be classified as owner-occupied property.
• Regarding the FS perspective, the lessor shall classify the leased asset on its separate FS as an investment property. However, the Group shall present it as owner-occupied property on its consolidated FS.
• An investment property shall be measured initially at cost
• Cost of investment property = Purchase Price + Directly attributable costs
• Directly attributable expenditure includes: professional fees for legal services, property transfer taxes, and other transactions.
• Operating losses incurred before the investment property achieves the planned level of occupancy shall be excluded from cost of investment property.
• Exclusions from investment property shall include abnormal amounts of wasted material, labor or other resources incurred in construction or developing the property.
• Start-up costs is not part of the cost of investment property.
• If the investment property was acquired in a deferred basis, the cost shall still be the cash price equivalent.
• The difference between the cash price equivalent and the installment sales price is recognized as interest over the credit period.
• When the IP is acquired through an exchange with a commercial substance, its cost shall be FV of asset given up plus cash paid less cash received.
• If the IP was acquired through exchange without commercial substance, its cost would be equal to the CV of asset given up plus cash paid less cash received.
• Cost of a self-constructed IP = Materials + DL + OH attributable to the construction
• Subsequently, the IP shall be measured based on the cost or fv model, whichever the entity chooses to elect.
• Under the cost model, cost = Cost - AccDep - Impairment
• FV model, FV at year-end
• Contrary to the FV model, the cost model does not report the changes in fv in the P/L. It only discloses such changes in the notes to fs
• An entity shall transfer a property to, or from, IP when, and only when there is a change in use.
• When reclassifying IP which elected the cost model, it shall be made at the carrying amount. Also, no gain or loss shall be recognized on the transfer.
• An IP shall be derecognized on disposal and when it is permanently withdrawn from use and no future economic benefits are expected from its use and disposal.
• Net proceeds - CV at the date of derecognition = gain or loss on disposal going to p/l
• IP is presented under the non-current assets section of the SFP
• The standard for IP is IAS 40
• An owner-occupied property is a property held by an entity for use in the production and supply of goods or services or for administrative purposes.