IAS 40 Investment property presentation.

IAS 40 INVESTMENT PROPERTY PRESENTATION

1. Submitted by Muhammad Irfan Ahmed Submitted t0 Sir Touseef Aalam IAS 40 — Investment Property

2. Overview IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both). Investment properties are initially measured at cost and, with some exceptions . may be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognized in profit or loss.

3. Definition of investment property Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both.

4. Examples of investment property land held for long-term capital appreciation land held for a currently undetermined future use building leased out under an operating lease vacant building held to be leased out under an operating lease property that is being constructed or developed for future use as investment property

5. The following are not investment property and, therefore, are outside the scope of IAS 40: property held for use in the production or supply of goods or services or for administrative purposes property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories) property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts) owner-occupied property (IAS 16 Property, Plant and Equipment), including 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 and owner-occupied property awaiting disposal property leased to another entity under a finance lease

6. Recognition Investment property should be recognized as an asset when it is probable that the future economic benefits that are associated with the property will flow to the entity, and the cost of the property can be reliably measured.

7. Initial measurement Investment property is initially measured at cost, including transaction costs. Such cost should not include startup costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy.

8. Measurement subsequent to initial recognition IAS 40 permits entities to choose between: a fair value model, and a cost model. One method must be adopted for all of an entity's investment property. Change is permitted only if this results in a more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a fair value model to a cost model

9. Fair value model Investment property is re-measured at fair value, which 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. 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. Fair value should reflect the actual market state and circumstances as of the balance sheet date. 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

10. 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

11. Transfers to or from investment property classification

12. Disposal An investment property should be derecognized 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 recognized as income or expense in the income statement. Compensation from third parties is recognized when it becomes receivable