Investment Property (IAS 40)
How IAS 40 defines investment property and the consequences of the cost versus fair value model choice, including transfers in and out of the classification and the treatment on disposal. Relevant to property-holding structures and real-asset vehicles.
What counts as investment property
Investment property is land or buildings held to earn rentals or for capital appreciation, rather than for use in the business or for sale in the ordinary course of operations. Property occupied by the owner, or held for sale, falls under different standards.
The model choice
After initial recognition at cost, an entity chooses either the fair value model or the cost model, and applies it to all its investment property. Under the fair value model, changes in fair value are recognised in profit or loss in the period they arise, and no depreciation is charged.
Transfers
Transfers to or from investment property are made only when there is a change in use, evidenced by events such as commencement or end of owner-occupation or development. The measurement consequences of a transfer depend on the model in use and the direction of the transfer.
Disposal
An investment property is derecognised on disposal or when permanently withdrawn from use with no future economic benefits expected. Gains or losses are the difference between net disposal proceeds and the carrying amount, recognised in profit or loss.
Written by the team at Finit Solutions, chartered accountants, Jersey.