BM1706

INVESTMENT PROPERTY AND OTHER NON-CURRENT ASSETS

Investment Property
According to IAS 40 Investment Property, investment property is a land or 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.
The image below shows a clearer illustration of investment property.

Figure 1. Investment Property

Source: https://www.ifrsbox.com/ias-40-investment-property

The following are examples of investment property (International Financial Reporting Standards, 2001):
a. land held for long-term capital appreciation rather than for short-term sale in the ordinary course of
business;
b. land held for a currently undetermined future use (If an entity has not determined that it will use the land
as owner-occupied property or for short-term sale in the ordinary course of business, the land is
regarded as held for capital appreciation.);
c. a building owned by the entity (or a right-of-use asset relating to a building held by the entity) and leased
out under one (1) or more operating leases;
d. a building that is vacant but is held to be leased out under one (1) or more operating leases; and
e. a property that is being constructed or developed for future use as an investment property.
Initial Recognition
An owned investment property shall be recognized as an asset when and only when (International Financial
Reporting Standards, 2001):
a. it is probable that the future economic benefits that are associated with the investment property will
flow to the entity; and
b. the cost of the investment property can be measured reliably.

An owned investment property shall be measured initially at its cost. Transaction costs shall be included in the
initial measurement. The cost of investment property includes (Simlogic, s.r.o, n.d.):
• its purchase price, and
• any directly attributable expenditures, such as legal fees or professional fees, property taxes, etc.

The following are excluded as part of the cost of investment property (Simlogic, s.r.o, n.d.):
• Start-up expenses - General start-up expenses should not be included as part of the cost of investment
property. However, if the start-up expenses are directly attributable to the item of investment property,
then these can be included.
• Operating losses - These are losses incurred before the planned occupancy level is achieved.
• Abnormal wastes - These include material, labor, or other resources incurred at construction.

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When payment for investment property is deferred, set the cash price equivalent of the property by discounting
it to its present value.
Valuation After Initial Recognition
An entity shall choose as its accounting policy either the fair value model or the cost model and shall apply
that policy to all of its investment properties.

Fair Value Model

After initial recognition, an entity that chooses the fair value model shall measure all of its investment properties
at fair value. A gain or loss arising from a change in the fair value of the investment property shall be recognized
in profit or loss for the period in which it arises (International Financial Reporting Standards, 2001).

If an entity has previously measured an investment property at fair value, it shall continue to measure the
property at fair value until disposal (or until the property becomes owner-occupied property, or the entity begins
to develop the property for subsequent sale in the ordinary course of business), even if comparable market
transactions become less frequent, or market prices become less readily available (International Financial
Reporting Standards, 2001).
Cost Model
After initial recognition, an entity that chooses the cost model shall measure investment property (International
Financial Reporting Standards, 2001):
a. in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations if it meets
the criteria to be classified as held for sale (or is included in a disposal group that is classified as held
for sale);
b. in accordance with IFRS 16 Leases if it is held by a lessee as a right-of-use asset and is not held for
sale in accordance with IFRS 5; and
c. in accordance with the requirements in IAS 16 Property, Plant, and Equipment for the cost model in all
other cases.

The image below summarizes the valuation after initial recognition.

Figure 2. Subsequent Measurement of Property Investment

Source: https://www.ifrsbox.com/ias-40-investment-property

Transfers to and from Other Classifications

An entity shall transfer a property to, or from, investment property, when and only when there is a change in
use. A change in use occurs when the property meets or ceases to meet the definition of investment property,
and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a
property does not provide evidence of a change in use.

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Examples of evidence of a change in use include (International Financial Reporting Standards, 2001):
a. commencement of owner-occupation, or of development to owner-occupation, for a transfer from
investment property to owner-occupied property;
b. commencement of development to sale, for a transfer from investment property to inventories;
c. end of owner-occupation, for a transfer from owner-occupied property to investment property; and
d. inception of an operating lease to another party, for a transfer from inventories to investment property.

For a transfer from investment property carried at fair value to owner-occupied property or inventories, the
property’s deemed cost for subsequent accounting in accordance with IAS 16 Property, Plant, and Equipment,
IFRS 16 Leases, or IAS 2 Inventories shall be its fair value at the date of change in use (International Financial
Reporting Standards, 2001).

If an owner-occupied property becomes an investment property that will be carried at fair value, an entity shall
apply IAS 16 for owned property and IFRS 16 for property held by a lessee as a right-of-use asset up to the
date of change in use. The entity shall treat any difference at that date between the carrying amount of the
property in accordance with IAS 16 or IFRS 16 and its fair value in the same way as a revaluation in accordance
with IAS 16 (International Financial Reporting Standards, 2001).
For a transfer from inventories to investment property that will be carried at fair value, any difference between
the fair value of the property at that date and its previous carrying amount shall be recognized in profit or loss
(International Financial Reporting Standards, 2001).
When an entity completes the construction or development of a self-constructed investment property that will
be carried at fair value, any difference between the fair value of the property at that date and its previous carrying
amount shall be recognized in profit or loss (International Financial Reporting Standards, 2001).
Presentation of the Statement of Financial Position
As required by IAS 1 Presentation of Financial Statements, investment property shall be separately shown as
a line item on the face of the statement of financial position. In a properly classified statement of financial
position, investment property is classified as a non-current asset (Robles & Empleo, 2016).
Derecognition
An investment property shall be derecognized (eliminated from the statement of financial position) on disposal
or when the investment property is permanently withdrawn from use, and no future economic benefits are
expected from its disposal.

Gains or losses arising from the retirement or disposal of investment property shall be determined as the
difference between the net disposal proceeds, and the carrying amount of the asset and shall be recognized
under profit or loss (unless IFRS 16 requires otherwise on a sale and leaseback) in the period of the retirement
or disposal (International Financial Reporting Standards, 2001).
Required Disclosures
An entity shall disclose:
• whether it applies the fair value model or the cost model;
• when classification is difficult, the criteria it uses to distinguish investment property from owner-occupied
property and from property held for sale in the ordinary course of business;
• the extent to which the fair value of investment property (as measured or disclosed in the financial
statements) is based on a valuation by an independent valuer who holds a recognized and relevant
professional qualification and has recent experience in the location and category of the investment
property being valued. If there has been no such valuation, that fact shall be disclosed;
• the amounts recognized in profit or loss for
o rental income from investment property,
o direct operating expenses (including repairs and maintenance) arising from investment property
that generated rental income during the period,

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o direct operating expenses (including repairs and maintenance) arising from investment property
that did not generate rental income during the period, and
o the cumulative change in fair value recognized in profit or loss on a sale of investment property
from a pool of assets in which the cost model is used into a pool in which the fair value model is
used.
• contractual obligations to purchase, construct or develop investment property or for repairs,
maintenance or enhancements.
Other Non-Current Financial Assets
IFRS 9 Financial Instruments classifies financial assets as financial assets at amortized cost, financial assets
at fair value through profit or loss, or financial assets at fair value through other comprehensive income.
However, some financial assets are not easily classified among the three (3) categories previously stated. The
classic example of this are the long-term funds.
The following are funds set aside for non-current purposes. Hence, classified as long-term assets (Valix, Peralta,
& Valix, 2016).
• Sinking fund or redemption fund - It is a fund set aside for the liquidation of long-term debt, more
particularly long-term bonds payable. As a rule, this type of fund is classified as a non-current asset.
However, if the bond is payable for which the sinking fund was set aside becomes due within 12 months
after the end of the reporting period, the sinking fund is reclassified as a current asset.
• Preference share redemption fund - It is a fund set aside by the company to ensure the eventual
redemption of the preference share.
• Plant expansion fund - It is a fund set aside in anticipation of future acquisition of additional property
because of expanded or increased volume of operations.
• Contingency fund - It is a fund set aside to meet obligations that may arise from contingencies like
pending lawsuits or taxes dispute.
• Insurance fund – It is a fund set aside to meet obligations that may arise from certain risks not insured,
such as fire, typhoon, explosion, and other similar casualties.
Non-Current Assets Held for Sale
An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be
recovered principally through a sale transaction rather than through continuing use.

For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale
must be highly probable.

The following items are the criteria for a highly probable sale (International Financial Reporting Standards,
2004):
• The appropriate level of management must be committed to a plan to sell the asset (or disposal group);
• An active program to locate the buyer and complete the plan must have been initiated;
• The asset must be actively marketed for sale at a price reasonable concerning its current fair value;
• The sale should be expected to qualify for recognition as a completed sale within one (1) year from the
date of classification, except extension is permitted by the standard;
• The actions required to complete the plan will be made or that the plan will be withdrawn; and
• The probability of shareholders’ approval.

Measurement of Non-current Assets (or Disposal Group)

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its
carrying amount and fair value less costs to sell. An entity, on the other hand, shall measure a non-current asset
(or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair
value less costs to distribute.
On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that are
not within the scope of the measurement requirements in IFRS 5 Non-Current Assets Held for Sale but are

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included in a disposal group classified as held for sale shall be remeasured in accordance with applicable IFRSs
before the fair value less costs to sell of the disposal group is remeasured
Financial Statement Presentation
An entity shall present a non-current asset classified as held for sale and the assets of a disposal group
classified as held for sale separately from other assets in the statement of financial position. The liabilities of a
disposal group classified as held for sale shall be presented separately from other liabilities in the statement of
financial position (International Financial Reporting Standards, 2004).
Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets
and liabilities classified as held for sale shall be separately disclosed either in the statement of financial position
or in the notes. An entity shall present separately any cumulative income or expense recognized in other
comprehensive income relating to a non-current asset (or disposal group) classified as held for sale
(International Financial Reporting Standards, 2004).
Required Disclosure
An entity shall present and disclose information that enables users of the financial statements to evaluate the
financial effects of discontinued operations and disposals of non-current assets (or disposal groups).
The following are the items that an entity should disclose (International Financial Reporting Standards, 2004):
a. A single amount in the statement of comprehensive income comprising the total of:
i. the post-tax profit or loss of discontinued operations; and
ii. the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the
disposal of the assets or disposal group(s) constituting the discontinued operation.
b. An analysis of the single amount in:
i. the revenue, expenses, and pre-tax profit or loss of discontinued operations;
ii. the related income tax expense as required by IAS 12 Income Taxes;
iii. the gain or loss recognized on the measurement to fair value less costs to sell or on the disposal
of the assets or disposal group(s) constituting the discontinued operation; and
iv. the related income tax expense as required by of IAS 12.
The analysis may be presented in the notes or in the statement of comprehensive income. If it is
presented in the statement of comprehensive income, it shall be presented in a section identified as
relating to discontinued operations, i.e., separately from continuing operations. The analysis is not
required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified
as held for sale on acquisition.
c. The net cash flows attributable to the operating, investing, and financing activities of discontinued
operations - These disclosures may be presented either in the notes or in the financial statements.
These are not required for disposal groups that are newly acquired subsidiaries that meet the criteria to
be classified as held for sale on acquisition.
d. The amount of income from continuing operations and from discontinued operations attributable to
owners of the parent company - These disclosures may be presented either in the notes or in the
statement of comprehensive income.

References
International Financial Reporting Standards. (2001). IAS 40 Investment Property. Retrieved on February 19, 2019, from
https://www.ifrs.org/issued-standards/list-of-standards/ias-40-investment-property
International Financial Reporting Standards. (2004, March). IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations. Retrieved on February 19, 2019, from https://www.ifrs.org/issued-standards/list-of-standards/ifrs-5-
non-current-assets-held-for-sale-and-discontinued-operations
Robles, N. S. & Empleo, P. M. (2016). Intermediate accounting (Vol 1.). Mandaluyong: Millenium Books, Inc.
Simlogic, s.r.o. (n.d.). Summary of IAS 40 investment property. Retrieved on February 19, 2019, from
https://www.ifrsbox.com: https://www.ifrsbox.com/ias-40-investment-property
Valix, C. T., Peralta, J. F., & Valix, C. A. (2016). Financial accounting (Vol 1.). Manila: GIC Enterprises & Co., Inc.

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