Fair value model
Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction. [IAS 40.5] Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. [IAS 40.35]
Fair value should reflect the actual market state and circumstances as of the balance sheet date. [IAS 40.38] The best evidence of fair value is normally given by current prices on an active market for similar property in the same location and condition and subject to similar lease and other contracts. [IAS 40.45] In the absence of such information, the entity may consider current prices for properties of a different nature or subject to different conditions, recent prices on less active markets with adjustments to reflect changes in economic conditions, and discounted cash flow projections based on reliable estimates of future cash flows. [IAS 40.46]
There is a rebuttable presumption that the entity will be able to determine the fair value of an investment property reliably on a continuing basis. However: [IAS 40.53]
If an entity determines that the fair value of an investment property under construction is not reliably determinable but expects the fair value of the property to be reliably determinable when construction is complete, it measures that investment property under construction at cost until either its fair value becomes reliably determinable or construction is completed. If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably determinable on a continuing basis, the entity shall measure that investment property using the cost model in IAS 16. The residual value of the investment property shall be assumed to be zero. The entity shall apply IAS 16 until disposal of the investment property.
Where a property has previously been measured at fair value, it should continue to be measured at fair value until disposal, even if comparable market transactions become less frequent or market prices become less readily available. [IAS 40.55]
Cost model
After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16 Property, Plant and Equipment – cost less accumulated depreciation and less accumulated impairment losses. [IAS 40.56]
Transfers to or from investment property classification
Transfers to, or from, investment property should only be made when there is a change in use, evidenced by one or more of the following: [IAS 40.57]
commencement of owner-occupation (transfer from investment property to owner-occupied property) commencement of development with a view to sale (transfer from investment property to inventories) end of owner-occupation (transfer from owner-occupied property to investment property) commencement of an operating lease to another party (transfer from inventories to investment property) end of construction or development (transfer from property in the course of construction/development to investment property
When an entity decides to sell an investment property without development, the property is not reclassified as inventory but is dealt with as investment property until it is derecognised. [IAS 40.58]
The following rules apply for accounting for transfers between categories:
for a transfer from investment property carried at fair value to owner-occupied property or inventories, the fair value at the change of use is the 'cost' of the property under its new classification [IAS 40.60] for a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16 [IAS 40.61] for a transfer from inventories to investment property at fair value, any difference between the fair value at the date of transfer and it previous carrying amount should be recognised in profit or loss [IAS 40.63] when an entity completes construction/development of an investment property that will be carried at fair value, any difference between the fair value at the date of transfer and the previous carrying amount should be recognised in profit or loss. [IAS 40.65]
When an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and they do not change the cost of the property for measurement or disclosure purposes.
Disposal
An investment property should be derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and the carrying amount of the asset and should be recognised as income or expense in the income statement. [IAS 40.66 and 40.69] Compensation from third parties is recognised when it becomes receivable. [IAS 40.72]
Disclosure
Both Fair Value Model and Cost Model [IAS 40.75]
whether the fair value or the cost model is used if the fair value model is used, whether property interests held under operating leases are classified and accounted for as investment property if classification is difficult, the criteria to distinguish investment property from owner-occupied property and from property held for sale the methods and significant assumptions applied in determining the fair value of investment property the extent to which the fair value of investment property is based on a valuation by a qualified independent valuer; if there has been no such valuation, that fact must be disclosed the amounts recognised in profit or loss for:
rental income from investment property direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period the cumulative change in fair value recognised in profit or loss on a sale from a pool of assets in which the cost model is used into a pool in which the fair value model is used restrictions on the realisability of investment property or the remittance of income and proceeds of disposal contractual obligations to purchase, construct, or develop investment property or for repairs, maintenance or enhancements
Additional Disclosures for the Fair Value Model [IAS 40.76]
a reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing additions, disposals, fair value adjustments, net foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes [IAS 40.76] significant adjustments to an outside valuation (if any) [IAS 40.77] if an entity that otherwise uses the fair value model measures an item of investment property using the cost model, certain additional disclosures are required [IAS 40.78]
Additional Disclosures for the Cost Model [IAS 40.79]
the depreciation methods used the useful lives or the depreciation rates used the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing additions, disposals, depreciation, impairment recognised or reversed, foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably, additional disclosures are required, including, if possible, the range of estimates within which fair value is highly likely to lie