ACT 2311: Advanced Financial Accounting
LKAS 40:
Investment Property
Kalani Dissanayake
LEARNING
OUTCOMES
• Identify the objective and
scope of the standard.
• Discuss the following
sections related to
investment property:
• Definitions
• Recognition
• Measurement
• Disclosure
• Apply the standard in
mini scenarios.
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INVESTMENT
P R O P E RT Y
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IP
vs.
PPE
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IP vs. PPE
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Objective
• Prescribe the accounting treatment for investment property
and related disclosure requirements.
Scope
• This Standard shall be applied in the recognition,
measurement and disclosure of investment property.
• This standard does not apply to:
• biological assets related to agricultural activity (see LKAS 41
Agriculture); and
• mineral rights and mineral reserves such as oil, natural gas
and similar nonregenerative resources.
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Definitions
• Carrying amount is the amount at which an asset is recognised
in the statement of financial position.
• Cost is the amount of cash or cash equivalents paid or the fair
value of other consideration given to acquire an asset at the
time of its acquisition or construction or, where applicable, the
amount attributed to that asset when initially recognised in
accordance with the specific requirements of other SLFRSs, eg
SLFRS 2 Share based Payment.
• Fair value 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. (See SLFRS 13
Fair Value Measurement).
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Definitions
• Investment property is property (land or a building—or part
of a building—or both) held (by the owner or by the lessee as
a right-of use asset) to earn rentals or for capital appreciation
or both, rather than for:
• use in the production or supply of goods or services or
for administrative purposes; or
• sale in the ordinary course of business.
• Owner-occupied property is property held (by the owner or
by the lessee as a right-of-use asset) for use in the production
or supply of goods or services or for administrative purposes.
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Classification of Property as Investment
Property or Owner-Occupied Property
• Investment property is held to earn rentals or for capital
appreciation or both. Therefore, an investment property
generates cash flows largely independently of the other assets
held by an entity. This distinguishes investment property from
owner-occupied property.
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Investment Property
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INVESTMENT
P RO P E RT Y
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When to Recognize Investment Property
The rules for recognition of investment property are essentially
the same as stated in LKAS 16 for property, plant and
equipment,
i.e. you recognize an investment property as an asset only if 2
conditions are met:
[Link] is probable that future economic benefits associated with the
item will flow to the entity; and
[Link] cost of the item can be measured reliably.
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How to Measure Investment Property Initially
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Not a Cost of Investment Property:
Start-up costs (unless they are necessary to bring the property to the
condition necessary for it to be capable of operating in the manner intended
by management).
Operating losses incurred before the investment property achieves the
planned level of occupancy, or
Abnormal amounts of wasted material, labour or other resources incurred in
constructing or developing the property.
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Subsequent Measurement
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TRANSFERS
An entity shall transfer a property to, or from,
investment property when, and only when, there is a
change in use.
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 intentions for
the use of a property does not provide evidence of
a change in use.
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Disposals
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DIS C LOS U RE S
Whether it applies the fair When classification is difficult The extent to which the fair The amounts recognised in
value model or the cost model. (see paragraph 14), the criteria value of investment property profit or loss.
it uses to distinguish (as measured or disclosed in
investment property from the financial statements) is
owner occupied property and based on a valuation by an
from property held for sale in independent valuer who holds
the ordinary course of a recognized and relevant
business. professional qualification and
has recent experience in the
location and category of the
investment property being
valued. If there has been no
such valuation, that fact shall be
disclosed.
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Thank You!
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