requirements, which include a qualitative sensitivity analysis. The disclosures for revalued
PP&E categorised under Level 3 include a reconciliation from the opening balance to the
closing balance, disclosing separately changes during the period to the following:
(i)
total gains and losses for the period recognised in profit or loss, and the line item(s)
in profit or loss in which these gains or losses are recognised;
(ii) total gains and losses for the period recognised in other comprehensive income,
and the line item(s) in other comprehensive income in which those gains or losses
are recognised;
(iii) purchases, sales, issues and settlements (separately disclosing each of those types
of changes);
(iv) transfers into or out of Level 3 of the fair value hierarchy (separately disclosing and
discussing transfers into Level 3 from those out of Level 3) including:
• the amounts of any transfers into or out of Level 3;
• the reasons for those transfers; and
• the entity’s policy for determining when transfers between levels are deemed
to have occurred. [IFRS 13.93].
These requirements and examples of the requirements are discussed in more detail in
Chapter 14 at 20.
1348 Chapter 18
8.3 Other
disclosures
In addition to the disclosures required by IAS 1, IAS 16 (i.e. those discussed in 8.1 and 8.2
above) and IFRS 13, the standard emphasises that entities are also required to disclose
information on impaired PP&E in accordance with IAS 36 (see Chapter 20 at 14.2.1
and 14.2.2). [IAS 16.78].
As users of financial statements may find other information relevant to their needs, the
standard encourages, but does not require, entities to disclose other additional
information such as the carrying amount of any temporarily idle PP&E, the gross
carrying amount of any fully depreciated PP&E that is still in use and the carrying
amount of any PP&E retired from active use but not classified as held for disposal in
accordance with IFRS 5. For any PP&E measured using the cost model, the disclosure
of its fair value is also encouraged when this is materially different from the carrying
amount. [IAS 16.79].
References
1
IFRIC Update, June 2017.
7
Research programme – research pipeline, IASB
2
IFRIC Update, March 2016.
website, 12 June 2018.
3
IASB Update, May 2016.
8
Effective Date of Amendments to IFRS 10 and
4
IASB Update, February 2018.
IAS 28, IASB, December 2015.
5
Exposure Draft (ED/2017/4) – Property, Plant 9
IFRIC Update, May 2014.
and Equipment – Proceeds before Intended Use
(Proposed amendments to IAS 16), IASB,
June 2017.
6
Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture,
(Amendments to IFRS 10 and IAS 28), IASB,
September 2014, IFRS 10, para. C1C and
IAS 28, para. 45C.
1349
Chapter 19
Investment property
1 INTRODUCTION ........................................................................................... 1353
1.1
New leases standard: IFRS 16 ........................................................................... 1354
2 DEFINITIONS AND SCOPE ........................................................................... 1354
2.1
Property interests held under operating leases ............................................ 1356
2.2 Land
....................................................................................................................... 1357
2.3 Property
leased
to others .................................................................................. 1357
2.4
Property held for own use (‘owner-occupied’) ............................................ 1358
2.5
Investment property under construction ...................................................... 1358
2.6
Property held or under construction for sale in the ordinary course
of business ............................................................................................................ 1358
2.7
Property with dual uses ..................................................................................... 1359
2.8
Property with the provision of ancillary services ........................................ 1361
2.9
Property where rentals are determined by reference to the
operations in the property ................................................................................ 1361
2.10 Group of assets leased out under a single operating lease ......................... 1362
3 RECOGNITION ............................................................................................. 1363
3.1
Expenditure prior to planning permissions/zoning consents .................... 1363
3.2
Other aspects of cost recognition .................................................................... 1364
3.2.1
Repairs and maintenance .................................................................. 1364
3.2.2
Allocation into parts ........................................................................... 1364
3.3
Acquisition of investment property or a business combination? .............. 1365
3.3.1
Possible future developments – exposure draft on
definition of a business ....................................................................... 1366
4 INITIAL MEASUREMENT ............................................................................. 1368
4.1
Attributable costs ................................................................................................ 1368
4.1.1
Acquisition of a group of assets that does not constitute a
business (‘the group’) .......................................................................... 1369
1350 Chapter 19
4.1.2
Deferred taxes when acquiring a ‘single asset’ entity that is
not a business ....................................................................................... 1370
4.2
Start-up costs and self-built property ............................................................. 1371
4.3 Deferred
payments
..............................................................................................
1371
4.4
Reclassifications from property, plant and equipment (‘PP&E’) or
from inventory ..................................................................................................... 1371
4.5
Initial measurement of property held under a lease .................................... 1372
4.6
Initial measurement of assets acquired in exchange transactions ............ 1372
4.7
Initial recognition of tenanted investment property subsequently
measured using the cost model ........................................................................ 1372
4.8 Borrowing
costs
..................................................................................................
1373
4.9
Lease incentives and initial costs of leasing a property .............................. 1373
4.10 Contingent
costs
.................................................................................................
1375
4.11 Income from tenanted property during development ................................ 1376
4.12 Payments by the vendor to the purchaser ......................................................1377
5 MEASUREMENT AFTER INITIAL RECOGNITION ........................................ 1377
5.1
Property held under an operating lease ......................................................... 1378
5.2 Measurement
by
insurers
and similar entities .............................................. 1378
6 THE FAIR VALUE MODEL ............................................................................. 1379
6.1
Estimating fair value ........................................................................................... 1380
6.1.1
Methods of estimation ....................................................................... 1381
6.1.2 Observable
data
..................................................................................
1382
6.1.3
Comparison with value in use .......................................................... 1383
6.1.4 ‘Double
counting’
................................................................................
1383
6.2
Inability to determine fair value of completed investment property ....... 1383
6.3
The fair value of investment property under construction ....................... 1384
6.4
Transaction costs incurred by the reporting entity on acquisition .......... 1386
6.5
Fixtures and fittings subsumed within fair value .......................................... 1387
6.6
Prepaid and accrued operating lease income ............................................... 1387
6.6.1
Accrued rental income and lease incentives ................................ 1387
6.6.2 Prepaid
rental income ....................................................................... 1387
6.7
Valuation adjustment to the fair value of properties held under a
lease ....................................................................................................................... 1389
6.8
Future capital expenditure and development value (‘highest and
best use’) ............................................................................................................... 1391
6.9 Negative
present
value
......................................................................................
1392
6.10 Deferred taxation for property held by a ‘single asset’ entity ................... 1393
7 THE COST MODEL ....................................................................................... 1393
Investment
property
1351
7.1
Initial recognition ............................................................................................... 1394
7.1.1
Identification of tangible parts ......................................................... 1394
7.1.2 Identification
of
intangible parts ..................................................... 1395
7.2
Incidence of use of the cost model ................................................................. 1395
7.3 Impairment
...........................................................................................................
1396
8 IFRS 5 AND INVESTMENT PROPERTY ...................................................... 1396
9 TRANSFER OF ASSETS TO OR FROM INVESTMENT PROPERTY ............... 1398
9.1
Transfers from investment property to inventory ...................................... 1400
9.2
Accounting treatment of transfers .................................................................. 1400
9.3
Transfers of investment property held under operating leases ............... 1402
10 DISPOSAL OF INVESTMENT PROPERTY .................................................... 1403
10.1 Calculation of gain or loss on disposal .......................................................... 1404
10.2 Sale prior to completion of construction ....................................................... 1405
10.3 Replacement of parts of investment property .............................................. 1405
10.4 Compensation
from third parties ................................................................... 1406
11 INTERIM REPORTING AND IAS 40 ............................................................ 1406
12 THE DISCLOSURE REQUIREMENTS OF IAS 40 .......................................... 1407
12.1 Disclosures under both fair value and cost models .................................... 1408
12.1.1
Methods and assumptions in fair value estimates ....................... 1409
12.1.2
Level of aggregation for IFRS 13 disclosures ................................ 1415
12.1.3
Disclosure of direct operating expenses ........................................ 1415
12.2 Additional disclosures for the fair value model ............................................ 1416
12.2.1
Presentation of changes in fair value .............................................. 1416
12.2.2
Extra disclosures where fair value cannot be determined
reliably .................................................................................................. 1418
12.3 Additional disclosures for the cost model ..................................................... 1418
12.4 Presentation
of
sales proceeds ......................................................................... 1419
13 FUTURE DEVELOPMENTS .......................................................................... 1420
13.1 New standard for insurance contracts: IFRS 17 ........................................... 1420
List of examples
Example 19.1:
Definition of an investment property: a group of assets
leased out under a single operating lease ...................................... 1362
Example 19.2:
The fair value model and transaction costs incurred at
acquisition ............................................................................................ 1386
Example 19.3:
Investment property and rent received in advance .................... 1388
1352 Chapter 19
Example 19.4:
Valuation of a property held under a finance lease ..................... 1390
Example 19.5:
Transfers from inventory .................................................................. 1399
1353
Chapter 19
Investment property
1 INTRODUCTION
IAS 40 – Investment Property –
is an example of the particular commercial
characteristics of an industry resulting in the special accounting treatment of a certain
category of asset, i.e. investment property. However, it is not only investment property
companies that hold investment property; any property that meets the investment
property definition in IAS 40 is so classified, irrespective of the nature of the business
of the reporting entity. This standard should be applied in the recognition, measurement
and disclosure of investment property. [IAS 40.1, 2].
The original standard, which was approved in 2000, was the first international standard
to introduce the possibility of applying a fair value model for non-financial assets where
all valuation changes from one period to the next are reported in profit or loss. This
contrasts with the revaluation approach allowed under IAS 16 – Property, Plant and
Equipment (see Chapter 18 at 6) where increases above cost, and their reversals, are
recognised directly in Other Comprehensive Income (‘OCI’).
The exposure draft that preceded IAS 40 proposed that fair value should be the sole
measurement model for investment property. However, some respondents were
concerned that, in certain parts of the world, property markets were not sufficiently
liquid to support fair value measurement for financial reporting purposes.
Consequently, the cost option was introduced into the standard, as the Board
believed, at that stage, that it was impracticable to require a fair value model for all
investment property.
Despite the free choice of model available, IAS 40 has a rebuttable presumption that,
other than in exceptional cases, an entity can measure the fair value of a completed
investment property reliably on a continuing basis.
The question of the reliability of valuations was given greater focus following the change
in scope of the standard in 2009 to include investment property under construction
(see 2.5 below) because, following that change, the standard allows investment property
under construction to be measured at cost if the fair value cannot be measured reliably.
However, in this case, the standard is not explicit on whether this should be confined
to ‘exceptional cases’ or not.
1354 Chapter 19
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 266
