IAS 40

IAS 40, titled Investment Property, is an International Accounting Standard issued by the International Accounting Standards Board (IASB). It prescribes the accounting treatment for investment property and related disclosure requirements. ^[1]

Definition

Investment property is 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 to earn rentals or for capital appreciation, or both, rather than for: ^[2]

• Use in the production or supply of goods or services or for administrative purposes; or
• Sale in the ordinary course of business.

Initial Measurement

Investment property is initially measured at its cost. Transaction costs must be included in this initial measurement. ^[3]

Subsequent Measurement

IAS 40 permits entities to choose between two models for all of its investment property: ^[4]

Fair Value Model

Under the fair value model, investment property is remeasured at the end of each reporting period. Unlike the revaluation model in IAS 16, changes in fair value are recognized in profit or loss rather than other comprehensive income. ^[5]

Fair Value Adjustment = Fair Value at Year End − Carrying Amount at Year Start

Cost Model

The cost model follows the requirements of IAS 16, where the property is carried at cost less accumulated depreciation and any accumulated impairment losses. ^[6]

Carrying Amount = Cost − Accumulated Depreciation − Accumulated Impairment Losses

Transfers

Transfers to, or from, investment property are made only when there is a change in use. The accounting for the transfer depends on the previous and new classification: ^[7]

• Investment Property to Owner-occupied (IAS 16): The property's "cost" for subsequent accounting is its fair value at the date of change in use.
• Inventory (IAS 2) to Investment Property: Any difference between the fair value at the date of transfer and its previous carrying amount is recognized in profit or loss.

Disclosures

Even if an entity uses the cost model, it is still required to disclose the fair value of its investment property in the notes to the financial statements, unless the fair value cannot be reliably determined. ^[8]

References

1. IAS 40.1; IAS 40.BC1.
2. IAS 40.5; IAS 40.BC4.
3. IAS 40.20.
4. IAS 40.30; IAS 40.BC10.
5. IAS 40.33–35.
6. IAS 40.56.
7. IAS 40.57; IAS 40.60–65.
8. IAS 40.79(e).