Chapter – 10

Investment property

Sr. No Chapter outline - Topics

140 Investment property

141 Investment property - Identification

142 Property Not an Investment property

143 Investment property - identification scenario

144 Apportionment of Investment property

145 Investment property - additional services

146 Investment property - recognition and measurement

147 Transfer to or from Investment property

148 Transfer to or from Investment property - Practice

Topic Videos 140-148 are mandatory part of this chapter

Topic 140 – Accounting for Non-Current Assets Investment Property

Investment Property
An investment in land and/or building that is held with the intention of earning rental income or for
capital appreciation (or both) is described as an investment property.

Owner Occupied Property

Held by the entity that is used for:
• production of goods or services

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• supply of goods or services
• administrative purposes

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Topic 141 – Investment Property Identification

Investment Property
Property (land or a building, or part of a building, or both) held (by the owner or by the lessee as a right-
of-use asset):
1. to earn rental income; or
2. for capital appreciation purposes; or
3. both
rather than for use in the production or supply of goods or services or for administrative purposes or for
sale in the ordinary course of business.

Examples
• Land held for long-term capital appreciation as opposed to short-term purposes like land held
for sale in the ordinary course of business;
• Land held for a currently undetermined future use;

Examples
• A building owned by the reporting entity (or a right-of-use asset relating to a building held by
the reporting entity) and leased out under one or more operating leases;
• Property under construction or being developed for future use as investment property.

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Topic 142 – Property not Identify as Investment Property

Examples
• Property employed in the business (i.e., held for use in production or supply of goods or services
or for administrative purposes);
• Property held for future use as owner-occupied property, property held for future development
and subsequent use as owner-occupied property;
• Property occupied by employees (whether the employees pay rent at market rates);
• Owner-occupied property awaiting disposal;
• Property being constructed or developed on behalf of third parties; Property held for sale in the
ordinary course of business or in the process of construction or development for such sale, the
accounting for which is specified by IAS 2;

• Property that is leased to another entity under a finance lease.

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Topic 143 – Investment Property Identification Scenario

Sample Co. built a residential property with the intention of selling it.
In the past, Sample Co. has regularly developed property and then sold it immediately after completion.
In order to increase the chances of a sale, this time Sample Co. chooses to let some of the flats on rent
as soon as they are ready for occupation.
The tenants move into the property before completion. How should Sample Co. present this property?

Conclusion
Sample Co. should classify this property as inventory. Because of Sample’s core business and its strategy
regarding selling property.
Letting out strategy is being carried out with the intention of increasing the chances of selling this
property.
This property is not let out for the long-term generation of rental income.
Neither this property is held for the purpose of capital appreciation.
Cont.….
X’s intention to sell the property under construction immediately after completion in the ordinary
course of business has not changed. Consequently, the property under con-struction does not fulfil the
definition of an investment property (IAS 40.9(a)).
Sample’s intention to sell the property under construction immediately after completion in the ordinary
course of business has not changed. Consequently, the property under construction does not fulfil the
definition of an investment property.

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Topic 144 – Apportionment of Investment Property Between Investment Property and Owner-
Occupied Property

Dual Use Property

Certain properties are not held entirely for rental purposes or for capital appreciation purposes.
Portions of these properties might be used by the entity for manufacturing or for administrative
purposes.

Purposes
These portions may be earmarked for different purposes that could be:
• sold, or
• leased under a finance lease, separately
The entity is required to account for them separately.

Deemed Investment Property

If the portions cannot be sold, or leased (as a finance lease), separately, then the property would be
deemed as an investment property only if an insignificant portion is held by the entity for business use.

Example
A shopping mall, which is rented to tenants, in which the owner maintains an office for the purposes of
managing and administering the commercial building.

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Topic 145 – Investment Property – Additional Services

Insignificant Services
When ancillary services are provided by the entity and these are a relatively insignificant component of
the arrangement, as when the owner of a residential building provides maintenance and security
services to the tenants, the entity treats such an investment as investment property.

Example
An example is when the owner of an office building provides security and maintenance services to the
lessees who occupy the building.

Significant Services
When the service provided is a comparatively significant component of the arrangement, then the
investment would be considered as an owner-occupied property.

Example
An entity that owns and operates a hotel and provides services to the guests of the hotel would be
unable to argue that it is an investment property. Rather, such an investment would be classified as an
owner-occupied property.

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Topic 146 – Investment Property – Recognition and Measurement

Recognition
Investment property is recognised as an asset when, and only when, it becomes probable that the entity
will enjoy the future economic benefits which are attributable to it, and when the costs of the
investment property can be reliably measured.

Measurement
• Initial measurement at cost
• Subsequent measurement
1. cost model
2. fair value model

Cost Model
It is exactly the same as IAS 16 i.e., cost less accumulated depreciation less accumulated impairment
losses.

Fair Value Model

When investment property is carried at fair value, at each subsequent financial reporting date the
carrying amount must be adjusted to the then-current fair value, with the adjustment being reported in
the profit or loss for the period in which it arises.

Fair Value Model

When choosing the fair value model all of the investment property must be measured at fair value,
except when there is an inability to measure fair value reliably

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Topic 147 – Transfer to or from Investment Property

Transfer
• From investment property to owner-occupied property;
• From an owner-occupied property to investment property;
• From investment property to inventories; or
• From inventories to investment property.

Measured at Cost Model

In the case of an entity that employs the cost model, transfers between investment property, owner-
occupied property and inventories do not change the carrying amount of the property transferred and
thus are measured and disclosed at the same NBV.

Measured at Fair Value Model

In the case of an entity that employs the fair value model, vastly different results follow as far as
recognition and measurement is concerned.

A change in management’s intentions for the use of a property by itself does not constitute evidence of
a change in use.

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Topic 148 – Transfer to or from Investment Property – Practice

Question - 1
Can a property that has previously been classified as an investment property be reclassified as inventory
if it is renovated to create disposal through sale?

Answer - 1
Yes. This may be the case when a significantly higher rental standard is achieved through renovation or
when the lettable area is notably increased.
However, if the renovation only serves to maintain the property at its current level, then there is no
development with the aim of sale.

Question - 2
Can a property under construction classified as inventory be reclassified as an investment property if the
disposal plans no longer exist?

Answer - 2
No. A property under construction that has been classified as inventory to date is not to be reclassified
solely on the basis of its intended use being changed.
This requires, an operating lease agreement to be commenced.

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