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