Summary of IAS 40 Investment Property

hi and welcome to this video with a

summary of the main rules in the

standard is 40 investment property this

standard is applied for various types of

a movable tangible assets like buildings

or lands and within the next few minutes

you’ll learn or not only when to apply

is 4d but also how to apply it

I am Sylvia of IFRS box comm and I help

people understand and simplify IFRS I

have created the IFRS kid a complex IFRS

course for you plus lots of free IFRS

materials so you are welcome to check

them out at IFRS box comm is 40 belongs

to the older standards as it was issued

some time ago while in its current

version it’s applicable for the period

starting on or after first January 2005

but of course there were some minor

changes as other standards developed the

objective of is 40 is to prescribe

accounting treatment and require

disclosure for investment property but

what is the investment property it is

the land or building or a part of it or

both so you can see here we speak solely

about immovable changeable assets and

that is held for either to earn rentals

or for capital appreciation it means to

make money on increasing prices on a

real estate market or for both so

investment property is not held for use

in the production or supply of goods or

services or for administrative purposes

it is also not held for the sale in the

ordinary course of business so here you

need to focus on the purpose why are you

holding a building or land

how are you monetizing it how do you

make money from it if it’s the first

three then use is 40 if it’s for a

production or admin purposes use is 16

and in the last instance use is 2 in

most cases let’s talk about when to

recognize investment property in your

financial statements you can do it when

two conditions are met it is probable

that the future

make benefits that are associated with

the investment property will flow to the

entity well think about associated

rewards and risks and the cost of the

investment property can be measured

reliably this rule is very similar to

the rule in IAS 16 for property plant

and equipment so maybe you are familiar

with that how do we measure investment

property initially that is when it’s

recognized in the financial statements

for the first time we do it at cost

including the transaction cost and the

main components of costs are purchase

price while this is clear and any

directly attributable expenditures and

here there are items like professional

or legal fees be careful because we do

not include any start-up expenses to

investment property well unless they are

directly attributable to that property

we also don’t include any operating

losses in pre-operation stage or until

reaching a full capacity

an abnormal waste of materials labor and

other resources incurred a development

of investment property let me also tell

you that the cost shall be measured at

cash price equivalent so if the payment

for the investment property is deferred

to some future point then you need to

discount it to the present value how do

we measure investment property

subsequently that is after the first

reporting period you have two options

here the first option is to use fair

value model here the investment property

is measured at fair value well simple as


I’ll talk about the fair value model in

more details a bit later but let me

stress here fair value model is not the

same as revaluation model under IAS 16

please remember it and be cautious about

it because many people get it wrong the

second choice is to apply cost model

under cost model you measure investment

property at cost less accumulated

depreciation less impairment loss if any

before I move to add some details let me

stress that you should use a 1 model for

all of your investment

with some exceptions let’s discuss fair

value model first under this model the

investment property should be measured

at fair value so it means that you

should revalue the investment property

at least at the end of each reporting

period the rules for fair value

measurement are stipulated in the

standard IFRS 13 fair value measurement

and you can find a video dedicated to

IFRS 13 in this channel to gain or loss

from any measurement is recognized in

profit or loss statement and a journal

entry is to debit profit or loss loss

from fair value measurement and credit

the investment property while if there’s

again then you make the opposite entry

at a fair value model you do not charge

any depreciation and that’s the main

difference from revaluation model if

you’re not able to measure fair value

reliably the Ender standard prescribes

different treatment based on whether

your investment property is under

construction or not if it’s under

construction and not yet completed then

you need to keep it at a cost until you

can measure fair value reliably or the

construction is completed if it is

completed investment property then you

might need to keep it using cost model

under IAS 16 but let me tell you this

should be very rare only when there is

no active market and is 40 assumes that

in most cases you should be able to

measure fair value of investment

property reliably the second choice is a

cost model and we will not explain it in

detail here because you should look to

the standard is 16 property plant and

equipment the standard is 40 refers you

dare to if an asset is classified as

hell for sale or in a disposal group

then you should apply IFRS 5 non current

assets held for sale and discontinued

operations now let me mention a few

words about transfers of assets to or

from investment property while you can

do it but only when there is a change in

use for example when you start using a

building for your own headquarters and

you rented it out previously then you

can transfer

from investment property to property

plant and equipment under is 16 finally

let’s explain when investment property

needs to be Derrick organized from the

financial statements it’s easy on

disposal by sale or entering into a

finance lease or when it’s permanently

withdrawn from use and the economic

benefits are no longer expected when you

direct organize an investment property

then you shall calculate gain or loss as

net disposal proceeds less carrying

amount and it shall be recognized in

profit or loss well we have just sum up

the standard is 40 investment property

and if you’d like to learn a bit more

you’re welcome to check IFRS box com

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