The accounting for property (land and/or buildings) held for rental income or capital appreciation (or both) is governed by IAS 40 Investment Property. With a few exceptions, investment properties are initially valued at cost and be later measured using a cost model or a fair value model, where changes in the fair value are recorded in profit or loss for the fair value model.
Reissued in December 2003, IAS 40 is applicable to annual periods starting on or after January 1, 2005.
These words serve as exceptions. They are only hyphenated after they are entered at the designated hyphenation points. Each word should be on a separate line. Select language: Corrections:
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History of IAS 40
| Date | Development | Comments |
|---|---|---|
| October 1984 | Exposure Draft E26 Accounting for Investments published | |
| March 1986 | IAS 25 Accounting for Investments issued | Operative for financial statements covering periods beginning on or after 1 January 1987 |
| July 1999 | Exposure Draft E64 Investment Property published | Comment deadline 31 October 1999 |
| April 2000 | IAS 40 Investment Property (2000) issued(Supersedes IAS 25 with respect to investment property) | Operative for annual financial statements covering periods beginning on or after 1 January 2001 |
| May 2002 | Exposure Draft Improvements to International Accounting Standards (2000) published | Comment deadline 16 September 2002 |
| 18 December 2003 | IAS 40 Investment Property (2003) issued | Effective for annual periods beginning on or after 1 January 2005 |
| 22 May 2008 | Amended by Annual Improvements to IFRSs 2007 (include property under construction or development for future use within scope) | Effective for annual periods beginning on or after 1 January 2009 |
| 12 December 2013 | Amended by Annual Improvements to IFRSs 2011–2013 Cycle (interrelationship between IFRS 3 and IAS 40) | Effective for annual periods beginning on or after 1 July 2014 |
| 8 December 2016 | Amended by Transfers of Investment Property (Amendments to IAS 40) | Effective for annual periods beginning on or after 1 July 2018 |
Amendments under consideration by the IASB
Property held under a finance lease by either the owner or the lessee with the intention of earning rentals or capital appreciation, or both, is referred to as investment property. This can include land, buildings, or portions of buildings. [IAS 40. 5].
Examples of investment property: [IAS 40.8]
- land held for long-term capital appreciation
- land held for a currently undetermined future use
- building leased out under an operating lease
- empty structure kept for rental purposes under an operating lease
- property that is being built or developed with the intention of becoming an investment in the future
IAS 40 does not apply to the following because they are not investment property: [IAS 40 5 and 40. 9].
- property kept for administrative purposes or for use in the production or supply of goods or services
- property held either in development for a sale or in the regular course of business and for sale (IAS 2 Inventories)
- building or development project being carried out for third parties (IAS 11 Construction Contracts)
- Owner-occupied property is defined as property that is used, owned, and developed for future use as owner-occupied property (IAS 16 Property, Plant, and Equipment). It also includes property that is occupied by employees and owner-occupied property that is held for disposal.
- property leased to another entity under a finance lease
The IASB broadened the scope of IAS 40 in May 2008 as part of its Annual Improvements Project to include property that is being developed or under construction with the intention of using it as an investment property in the future. Such property previously fell within the scope of IAS 16.
Property held under an operating lease. Under certain conditions, a lessee’s property interest under an operating lease may be recognized and recorded as investment property: [IAS 40] 6].
- the rest of the definition of investment property is met
- In line with IAS 17 Leases, the operating lease is treated as though it were a finance lease.
- For the asset recognized, the lessee applies the fair value model outlined in this Standard.
The aforementioned classification may be made by an entity property-by-property.
Partial own use. If an owner uses a portion of the property for personal use and another portion for capital appreciation or rental income, and both portions are marketable or leaseable separately, they are separately capitalized and reported. Therefore the part that is rented out is investment property. The property is only considered investment property if the owner-occupied portion is negligible and the remaining portions cannot be sold or leased separately. [IAS 40. 10].
Ancillary services. When an entity offers ancillary services to tenants in a property it owns, the value of those services determines whether or not the property should be classified as investment property. The entity may treat the property as investment property if those services make up a small portion of the overall agreement (for example, the building owner provides security and maintenance services to the lessees). Owner-occupied properties should be designated as such when the services offered are more substantial (as in the case of an owner-managed hotel). [IAS 40. 13].
Intracompany rentals. In consolidated financial statements that include both the lessor and the lessee, property rented to a parent, subsidiary, or fellow subsidiary is not considered investment property because, from the group’s perspective, the property is owner-occupied. However, if the requirements for investment property are fulfilled, such property might be considered investment property in the lessor’s separate financial statements. [IAS 40. 15].
When it is likely that the entity will receive the associated future economic benefits and the cost of the property can be accurately determined, investment property should be recognized as an asset. [IAS 40. 16].
Investment property is initially measured at cost, including transaction costs. Start-up expenses, excessive waste, or early operating losses before the investment property reaches the intended level of occupancy shouldn’t be included in this cost. [IAS 40. 20 and 40. 23].
IND AS 40 (ENGLISH) INVESTMENT PROPERTY | FR SHIELD REVISION MAY / NOV 23
FAQ
What is IND AS 40 investment property?
What is investment property under IAS 40?
What is an investment property as per accounting standard?
What can be classified as investment property?
What is Ind AS 40 – investment property?
Ind AS 40 – Investment Property: The basis and rationale for classification of property held by an entity as Investment Property, Inventories and Property, Plant and Equipment. Extract of Ind AS 40 Definition:
Is investment property considered an expense under Ind AS 40?
Under IND AS 40, subsequent expenditures related to investment property are generally recognized as an expense when incurred, unless they meet the criteria for recognition as an asset.
Does Ind AS 40 include disclosures in investment property?
In addition, Ind AS 40 itself includes a number of disclosures in respect of investment property. Because Ind AS 40 makes no reference to making disclosures on a class-by-class basis, it could be assumed that the minimum requirement is to make the disclosures on an aggregate basis for the whole investment property portfolio.
What is Ind AS 40?
Here, IND AS 40 does not describe it in detail but refers to the standard IND AS 16 Property, Plant and Equipment. It means you need to take the same methodology which is adopted in IND AS 16. Can you actually switch from a fair value model to a cost model or vice versa from the cost model to a fair value model?