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An amendment to IAS 40, 'Investment property', clarifying when assets are transferred to, or from, investment properties is effective for annual periods beginning on or after 1 January 2018. The amendment clarified that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence. The Board confirmed that a change in intention, in isolation, is not enough to support a transfer.
Certain properties are classified as investment properties for financial reporting purposes in accordance with IAS 40, 'Investment property'. The characteristics of these properties differ significantly from owner-occupied properties. It is the current value of such properties and changes to those values that are relevant to users of financial statements.
Investment property is property (land or a building, or part of a building or both) held by an entity to earn rentals and/or for capital appreciation. For example, property in the course of construction or development. Any other properties are accounted for as property, plant and equipment (PPE) or inventory in accordance with:
- IAS 16, ‘Property, plant and equipment’, if they are held for use in the production or supply of goods or services; or
- IAS 2, ‘Inventories’, as inventory, if they are held for sale in the ordinary course of business.
Investment property is initially measured at cost. Management may subsequently measure investment properties at fair value or at cost. This is an accounting policy choice. The policy chosen is applied consistently to all the investment properties that the entity owns.
Investment properties in the course of construction or development are measured at fair value if this can be reliably measured, when the fair value option is chosen. Otherwise they are measured at cost.
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”. Guidance on fair value measurement is given in IFRS 13. Changes in fair value are recognised in profit or loss in the period in which they arise.
The cost model requires investment properties to be carried at cost less accumulated depreciation and any accumulated impairment losses; the fair value of these properties is disclosed in the notes.