Chapter 6 - Investment Property

• property (land and building) held to earn rentals or for capital appreciation or both.


  Investment Property
• Investment property generates cash flow largely independently of the other assets. This distinguishes investment property from owner occupied property
• Property occupied by employees is a PPE, whether or not the employees pay rent at market rates
• If the portions of the property could be sold or leased out separately, an entity accounts the portions separately
• Separate accounting for the portions of the property applies if the portions are physically and legally separable.
• If the property could not be sold separately, the property is investment property. Only if an insignificant portion is owner occupied
• 1. If the services are insignificant, investment property
  2. If the services are significant, PPE
• In the consolidated financial statement, the property does not qualified as an investment property because the property is owner - occupied from the perspective of the group.
• In the individual FS of the lessor, the property is investment property if it meets the definition
• Investment property shall be measured initially at cost. Transaction cost shall be included in the initial measurement.
• Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy.
• Investment property may be subsequently measured using cost model or fair value model
• investment property is remeasured at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. [IAS 40.5] Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.
• Changes in carrying amount using fair value model

  1. Acquisitions - Increase
  2. Capitalized subsequent expenditure - Increases
  3. Increase in FV - Increase
  4. Decrease in FV - Decrease
  5. Reclassifications to - Increase
  6. Reclassications - Decrease
  7. Disposals/ Retirements - Decrease
• For non-financial assets, a fair value measurement takes into account a market's participant to generate economic benefits by using the assets in its highest and best use or by selling it to another market participant.
• All entity are required to measure the fair value of investment property, for the purpose of either measurement or disclosure
• In investment property that is held as a right of use asset, the lessee shall measure the right of use asset, and not the underlying property, at fair value
• A change in use of the property will require transfer to or from investment property
• A change in use occurs when the property meets, or ceases to meet the definition of investment property and there is evidence of the change in use. In isolation, a change in management's intention for the use of property does not provide evidence of change in use.
• summary of accounting for the difference between the fair value and carrying amount of the property on the date of transfer using the FV model

  
• The disposal of an investment property may be achieved by sale or by entering into a finance lease.
• The date of disposal of an investment property is the date the recipient obtains control of that items
• land held for undetermined use are regarded as held for capital appreciation (investment property)
• Property occupied by employees is PPE, whether or not the employees pay rent at market rates
• Items included in cost of investment property

  1. Purchase price; and
  2. Directly attributable expenditure
• Directly attributable expenditure includes;

  1. professional fees
  2. property transfer taxes
  3. other transaction costs
• an entity is encouraged, but not required to measure the FV of investment property on the basis of a valuation by an independeny appraiser
• the lessee shall measure the right of use asset, and not the underlying property at fair value, this is because the asset is the right not the property
• Measurement of Transfers

  @cost model - carrying amount

  @ FV model

  1. From IP to OOP or INV - New CA is FV; gain or loss = Profit or Loss
  2. From INV to IP = Gain or Loss is recorded on P and L
• FROM OOP TO IP

  1. charge to impairment loss; excess - revaluation surplus (increase)
  2. charge to rv surplus; excess is impairment loss (decrease)
• Fair value

  P19 million
• Reclassification journal entry

  Inventories to investment property

  Investment property P19,000,000

  Investment property P19,000,000 Loss 1,000,000

  Investment property P19,000,000 Loss 1,000,000 Inventories P20,000,000
• PPE to investment property

  An entity shall apply PAS 16 for owned property and PFRS 16 for property held by a lessee as a right-of-use asset up to the date of change in use
• Accounting for difference between carrying amount and fair value

  The entity shall treat any difference at that date between the carrying amount of the property in accordance with PAS 16 or PFRS 16 and its fair value in the same way as a revaluation in accordance with PAS 16
• Revaluation increase (Fair value higher than carrying amount)

  • No previous revaluation decrease: Recognized as income in OCI and accumulated in equity under the heading of revaluation surplus
  • With previous revaluation decrease: Recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss
• Revaluation decrease (Fair value lower than carrying amount)

  • No existing revaluation surplus: Expense in profit or loss
  • With existing revaluation surplus: Recognized in OCI to the extent of any credit balance existing in the revaluation surplus in respect of that asset