IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

INVESTMENT PROPERTY (lAS 40)

1. BACKGROUND AND INTRODUCTION

1.1 Th is Standard prescribes criteria for the accounting treatment for , and disclosure s rela ting to,

investment property.

1.2 The Standard shall be appli ed in the recogniti on, measurement, and disclosure of investment

propert y.

1.3 The Standard applies to the measurement in a lessee ' s financial statements of investment

property held under a financ e lease and to the measurement in the lessor' s financial statements of

investment property leased out under an operating lease. However, all other aspects relatin g to

leases, their accounting and their disclo sure, are dealt with in lAS 17,

Leases.

Add itionally, the

Standard does not deal with biological assets related to agricultural activity (see lAS

41)

or to min–

eral rights and mineral reserves such as oil, natural gas and similar nonregenerati ve resources (see

IFRS 6).

2. DEFINITIONS OF KEY TERMS (in accordance with lAS 40)

Investment prop erty. Land or build ing, or part of a building, or both , held by the owner or the

lessee under a finance lease to earn rental s and/o r for capital appreciation, rather than for use in

production or supply of goods and serv ices or for administrative purposes or for sale in the or–

dinary course of business.

Owner-occupied property. Property held by the owner or the lessee under a finance lease for

use in produ ction or supply of goods and services or for admini strati ve purposes.

3. INVESTMENT PROPERTY

3.1 Property interests held by a lessee under an operati ng lease

may

(i.e ., it is opti onal) be classi–

fied and recogn ized as an investment property

and only

the property would otherwise meet the

definition of an investment property and the property is measured using the

fair value model

de–

scribed later. Thi s aspect of recognizing investment property is a comparatively recent addition and

was included in response to the fact that in some countries, propert ies are held under long leases

that provide, for all intents and purposes, rights that are similar to those of an outright buyer. The

inclusion in the Standard of such interests permits the lessee to mea sure such asset s at fair value.

3.2 One of the distingui shing characteristics of inves tment property (compared to own er–

occupied property) is that it generates cash flows that are largely independent from other assets

held by an entity . Owner-occupied property is accounted for under lAS 16,

Property, Plant, and

Equipment.

3.3 In some instances, an entity occ upies part of a property and leases out the balance. If the two

portions can be sold separately, each is accounted for appropria tely. If the port ion s cannot be sold

separately, then the entire property is treated as investment property

only

an insignifi cant pro–

portion

owner-occupied.

Practical Insight

Preci sely what is meant by "insignificant" is not defined and is left to j udgment. However, in

other Standards, indications are that 2% may be an appl icable level.