investment property
TRANSCRIPT
INVESTMENT PROPERTY
IAS 40
What will be learn?
What is Investment Property How is IP recognised & measured Disclosure of IP
Definition
Non – Current Asset Land or Buildings or both Entity hold & control over period > 12
months or held under a finance lease Earn rental income & /or Gain from capital appreciation NOT held as trading stock or used for
producing goods/services
Recognition
Must meet ASSET definition Resource Control Past event Probable future benefits flow to entity Cost measured reliably
AND
Investment Property Definition
PPE VS IP
If a property is used for production of goods/services = PPE
If property used to earn rental income = IP
BUT what if used for both? If able to identify the part used for own use & part
earning rental income – account for them separately as PPE & IP
If split is not possible – need to determine which part is insignificant, and recognise the entire property as the significant part.
Example
30 story building is owned in Cape Town. 28 floors are leased out(operating leases with option to purchase) & 2 floors are used by the company as head office.
Value per floor has been estimated by a valuator at 300 000 each
How would we classify this building & at what amounts?
Solution
There are 2 portions within the building 2 floors are owner occupied 28 floors are leased out
Since the parts are separable – we can classify them separately Property, Plant & Equipment – 600 000 Investment Property – 8 400 000
If we were unable to obtain a value per floor then how would this building be classified?
Ancillary Services
What are Ancillary Services? Cleaning, maintenance or security
Need to determine if significant services or not
If services are insignificant – regard the property as IP
Examples
UKZN Owns 3 buildings Building 1 – leased via an operating lease. Ukzn pays
for the cleaning & maintenance of the Building Building 2 – Leased to UJ, however, UKZN has all the
knowledge therefore they manage this building for a management fee
Building 3 – This is a hotel that they leased to Sun Group, for fixed monthly rental plus 0.5% share in hotel profits. Ukzn has no involvement in management decisions. They just ensure that building maintained to the standard expected of the Sun Group
How would these buildings be recognised?
Solution
Building 1 – Investment Property Cleaning services are insignificant
Building 2 – Property Plant & Equipment Managing this building involves a
significant service Building 3 – Investment Property
UKZN is passive investor in hotel – not part of management decisions.
Initial Measurement
At current cost PLUS Transaction cost PLUS Directly attributable costs PLUS Professional fees PLUS Transfer costs
Unusual Initial Measurements Deferred Payment
PV the selling price – the difference recorded as interest
Long Operating Leases Will be discussed in 3rd year
Non – Monetary Exchange Use the FV asset given up OR FV asset received
Example of deferred payment Purchased a block of flats on 01/01/2013 Have agreement with seller that will pay
the amount of 2 million on 31/12/2014 Current market interest rate is 10%
What is the amount we would recognise the IP in our books?
PV = 1 652893
What would be the journal to process?
DR Investment Property(sofp) 1 652 893 CR Long Term Loan(sofp) 1
652893 (purchase of IP)
The difference between 2 million and 1 652 893 will be recognised as finance cost for period till payment is made
Subsequent Measurement
Measure at FV every year
FV is the market value No depreciation is
recognised Any increase/decrease
in value – gain/loss in SOCI – P/L
Journals on page 137 & example on page 138
No impairment testing
Measure at cost less accum depreciation & impairment
Treated similar to PPE cost model
Journals on page 138 & example on page 139
Need to tested for impairment
Fair Value Model Cost Model
Disclosure
Investment property will be found in the following Accounting Policy note
State measurement model If at FV – significant assumptions used, valuator
details Statement of Financial Position
Non – current Assets section Note to SOFP
Recon of opening balance, movement and closing balance Any mortgage or restrictions If cost model – what the FV would have likely been
Disclosure contin…
Statement of Profit & loss In the profit before tax note
Net gain/loss from FV adjustments – if FV model used
Depreciation/impairment – if cost model used
Profit/loss from disposal of IP Direct operating expenses
Disclosure example
Investment property purchased 01/01/2013 for 1 million. IP carried at FV. At the year end, 31/12/2013, the IP was valued at 1,5million by an independent valuator.
REQUIRED Disclose all IP in the financials in terms
of IFRS
Disclosure Example
COMPANY NAME Statement of Financial Positon as at
31/12/2013 ASSETS
Non-Current Assets Investment Property n21 1 500 000
Statement of Profit & Loss and OCI Other Income (XXX+ 500 000) XXXXXX
Notes to AFS
2. Accounting Policies 2.1 Investment Property
Investment Property are land & buildings held to earn rental & for capital appreciation.
IP is measured at FV 21. Investment Property (FV)
Opening Balance 0 Addition in year 1 000 000 Fair Value Adjustment 500 000 Closing Balance
The IP has been fair valued by suitably qualified & independent valuator with recent experience in similar property in similar areas.
1 500 000
Notes to AFS contin…
35. Profit before tax Profit before tax is stated after: Included in Other income
FV adjustment on IP 500 000 IP expenses XXXX Rental Income from IP XXXX
What have we learnt?
What investment property is How to recognise & measure IP How to disclose IP
Change in TEST time
Test will be from 6pm to 8pm due to load shedding