CHAPTER

BLUE NOTES
14 S
L
Investment Property Owner Occupied
 Property (land or building, or part of a building, or  Property
both)  Held by an owner or by the lessee
 Held by an owner or by the lessee under a finance  For use in the production or supply of goods or
lease services or for administrative purposes.
 To earn rentals or for capital appreciation or both.

Investment Property Distinguished from Owner Occupied Property

INVESTMENT PROPERTY OWNER OCCUPIED PROPERTY
Purpose to earn rentals for use in the production or supply of g/s
for capital appreciation for administrative purposes

property held for use in the production or

Examples land held for long term capital appreciation
Land held for currently undetermined use
building owned or held by an entity under a
finance lease and leased out under one or
more operating leases
supply of g/s 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

building that is vacant but is held to be leased
out under one or more operating lease
property that is being constructed or
developed for future use as an investment
property.
property occupied by the employees whether
or not the employees pay rent at market rate
property held for sale in the ordinary course
of business or in the process of construction
or development for such sale
owner occupied property awaiting disposal
property being constructed or developed in
behalf of third parties
property that is leased to another entity
under a finance lease

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52 USL Blue Notes Chapter 14 – Investment Property

Measurement
A. Initial Measurement
 At COST
 If payment for an investment property is deferred:
COST = Cash price equivalent
Cost shall comprise:
 Purchase Price
 Directly attributable expenditures (i.e. professional fees for legal services, property taxes, and
other transaction costs)
Cost shall exclude:
 Start-up costs, unless necessary in bringing the property to its working condition
 Initial operating losses before the investment property achieves the planned level of occupancy
 Abnormal amounts of wasted material, labor, and other resources incurred in constructing, or
developing the product.
B. Subsequent Measurement
Either:

Fair Value Model Cost Model

 Carried at Fair Value  Carried at cost less any accumulated
 Any changes in fair value are included depreciation and accumulated
in the net income or loss of the period impairment losses.
in which they arise and shown in the  Fair Value of the investment property
income statement. shall be disclosed.
 No depreciation is recorded.

Fair Value of Investment Property

The price at which the property could be exchanged between knowledgeable and willing parties in the arm’s
length transaction.
 Shall reflect the market value at the end of the reporting period.
 Without deduction for transaction costs that may be incurred on sale or other disposal.
 Exclusive of prepaid or accrued operating lease income.
Best estimate of fair value: (in order of priority)
1. Current price in an active market for similar property in the same location/condition and subject to
similar lease and other contract.
2. If Current price in an active market is not available:
i. Current price in an active market for property of different nature/condition/location
ii. Recent price of similar property in less active market.
iii. Discounted cash flow projections based on reliable estimate of future cash flows.
3. If there is inability to determine fair value, the cost model shall be applied.

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Chapter 14 – Investment Property USL Blue Notes 53

Transfer to and From Investment Property

A. Transfers under the Cost Model:
Transfers between investment property, owner occupied property, and inventory shall be made at Carrying
Amount.

B. Transfers under the Fair Value Model:

 Transfers from Investment Property:
Investment property  Owner Occupied Property/ Inventory.
Transfer shall be accounted for at Fair Value (Deemed Cost for subsequent accounting)

 Transfers to Investment Property:

Owner Occupied Property  Investment Property

The difference between the fair value and the carrying amount shall be accounted for as revaluation of PPE.

Inventory  Investment Property

The remeasurement to fair value shall be included in profit or loss.

 When an Investment Property under construction is completed

The difference between the fair value and the carrying amount shall be included in profit or loss.
Derecognition Of Investment Property
Shall be derecognized when:
 Disposed
 Permanently withdrawn from use
 No future economic benefits are expected from the property.
 Net Disposal Proceeds – Carrying Amount = Gain or Loss (recognized in Profit or Loss)

Other Considerations
A. Mixed Use of Property

Investment Owner
Case
Property Occupied
The portions could be sold separately  
The portions could not be sold separately:
 The ancillary services provided are
significant component of the
arrangement 
 The ancillary services provided are
insignificant component of the
arrangement 

B. Investment Property Held under Operating Lease

Provided:
 The property meets the definition of investment property.

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54 USL Blue Notes Chapter 14 – Investment Property

 The operating lease is accounted for as if it were a finance lease.

 The lessee uses the fair value model in measuring the property interest.
The initial cost shall be the fair value or the present value of the minimum lease payments whichever is
lower.

C. Property Leased To an Affiliate

Individual Entity Perspective Considered as an Investment Property
Group Perspective (Consolidation Purposes) Considered as an Owner Occupied Property.

Disclosures
A. General Disclosures
 Whether the entity uses the cost or fair value model.
 The amount of rental income and related expense for the period.
 Restrictions on the investment property either through rentals or sale proceeds.
 Contractual obligation to purchase or construct investment property.
B. Fair Value Model Disclosures
 Detailed reconciliation, showing all movement in the carrying amount of the asset.
 The method in determining fair value, and whether the valuation is carried out by an independent
qualified valuer.
 Net gains or losses from the fair value adjustments.
 Whether significant fixtures have been separately recognized within the investment property.
C. Cost Model Disclosures
 Depreciation method or rate and useful life.
 Detailed reconciliation of the gross cost of investment property and related accumulated depreciation.
 Fair value of the investment property if possible, if not, such shall be explained.

Practical Accounting 1 Theory of Accounts