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
recognised in profit or loss.
IAS 40 was reissued in December 2003 and applies to annual periods beginning on or after 1
January 2005.
History of IAS 40
Date
October 1984
Development
Comments
March 1986
July 1999
Comment deadline 31
October 1999
April 2000
May 2002
Comment deadline 16
September 2002
22 May 2008
013
8 December
2016
Related Interpretations
None
None
Summary of IAS 40
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. [IAS 40.5]
Examples of investment property: [IAS 40.8]
property that is being constructed or developed for future use as investment property
The following are not investment property and, therefore, are outside the scope of IAS 40:
[IAS 40.5 and 40.9]
property held for sale in the ordinary course of business or in the process
of construction of development for such sale (IAS 2 Inventories)
In May 2008, as part of its Annual improvements project, the IASB expanded the scope of
IAS 40 to include property under construction or development for future use as an investment
property. Such property previously fell within the scope of IAS 16.
Other classifcation issues
Property held under an operating lease. A property interest that is held by a lessee under an
operating lease may be classified and accounted for as investment property provided that:
[IAS 40.6]
the operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases
the lessee uses the fair value model set out in this Standard for the asset
recognised
Recognition
Investment property should be recognised 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. [IAS 40.16]
Initial measurement
Investment property is initially measured at cost, including transaction costs. Such cost
should not include start-up costs, abnormal waste, or initial operating losses incurred before
the investment property achieves the planned level of occupancy. [IAS 40.20 and 40.23]
Measurement subsequent to initial recognition
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.
Fair value model
Investment property is remeasured at fair value, which is the amount for which the property
could be exchanged between knowledgeable, willing parties in an arm's length transaction.
[IAS 40.5] 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. [IAS 40.35]
Fair value should reflect the actual market state and circumstances as of the balance sheet
date. [IAS 40.38] The best evidence of fair value is normally given by current prices on an
active market for similar property in the same location and condition and subject to similar
lease and other contracts. [IAS 40.45] In the absence of such information, the entity may
consider current prices for properties of a different nature or subject to different conditions,
recent prices on less active markets with adjustments to reflect changes in economic conditions, and discounted cash flow projections based on reliable estimates of future cash flows.
[IAS 40.46]
There is a rebuttable presumption that the entity will be able to determine the fair value of an
investment property reliably on a continuing basis. However: [IAS 40.53]
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. [IAS 40.55]
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. [IAS 40.56]
Transfers to or from investment property classifcation
Transfers to, or from, investment property should only be made when there is a change in use,
evidenced by one or more of the following: [IAS 40.57 (note that this list was changed from
an exhaustive list to an non-exhaustive list of examples by Transfers of Investment Property
in December 2016 effective 1 January 2018) ]
commencement of development with a view to sale (transfer from investment property to inventories)
commencement of an operating lease to another party (transfer from inventories to investment property)
When an entity decides to sell an investment property without development, the property is
not reclassified as inventory but is dealt with as investment property until it is derecognised.
[IAS 40.58]
The following rules apply for accounting for transfers between categories:
for a transfer from investment property carried at fair value to owner-occupied property or inventories, the fair value at the change of use is the
'cost' of the property under its new classification [IAS 40.60]
at that date and the fair value is dealt with as a revaluation under IAS 16
[IAS 40.61]
When an entity uses the cost model for investment property, transfers between categories do
not change the carrying amount of the property transferred, and they do not change the cost
of the property for measurement or disclosure purposes.
Disposal
if the fair value model is used, whether property interests held under
operating leases are classified and accounted for as investment property
if an entity that otherwise uses the fair value model measures an item of
investment property using the cost model, certain additional disclosures
are required [IAS 40.78]
the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably, additional disclosures are
required, including, if possible, the range of estimates within which fair
value is highly likely to lie