IAS 40 Investment Property

This is a post of my own detailed and thorough explanation on the standards of the subject I'm taking, P2 Corporate Reporting (ACCA)

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IAS 40 Investment Property

All land and building that is held for rental or for capital appreciation to be classified as an investment property. For example, property with undetermined future use, operating lease, capital appreciation, and building constructed to be used as investment property.

The outside scope of IAS 40 are property rented out for employee (IAS 16), owner occupied property (IAS 16), property under finance lease (IAS 17), property held for sale in the ordinary course of business (IAS 2) and property that is constructed on behalf of third party (IAS 11).

When parent rented out to the subsidiary of the group, it is to be treated as an investment property (IAS 40) in their own financial statement. However, it is treated as Property, Plant and Equipment (IAS 16) in the consolidated financial statement. 

Investment property can be carried at cost model and fair value model. Cost model is to carry at net book value while fair value model is the changes in fair value to Statement of Profit or Loss (FVTPL). There will not be depreciation for the fair value model.

For the reclassification of investment property, there are several possibilities. 

When IAS 40 to IAS 16, the fair value of the property at the date of reclassification would be considered as the cost of the PPE. From that date, it will start to depreciate.

FV → CA

When IAS 16 to IAS 40, the property will be revalued to its fair value at the date of reclassification and from there on used fair value. The surplus will go to reserve and transfer to retained earnings while deficit will go to expenses. 

CA → FV

When IAS 2 to IAS 40, the property will be revalued but the surplus would be recognized as income in the Statement of Profit or Loss.

CA → FV (Surplus - Income)

Ends,