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CH3_Investment Property Lecture

PAS 40 outlines the recognition and measurement of investment property, which includes real property held for future economic benefits. It distinguishes between owner-occupied property (PPE) and investment property based on usage and cash flow generation, with specific accounting treatments for initial recognition and subsequent measurement under cost and fair value models. Transfers between classifications are addressed, detailing the accounting implications for changes in use and the treatment of gains or losses during reclassification.

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9 views

CH3_Investment Property Lecture

PAS 40 outlines the recognition and measurement of investment property, which includes real property held for future economic benefits. It distinguishes between owner-occupied property (PPE) and investment property based on usage and cash flow generation, with specific accounting treatments for initial recognition and subsequent measurement under cost and fair value models. Transfers between classifications are addressed, detailing the accounting implications for changes in use and the treatment of gains or losses during reclassification.

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kshearthh
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© © All Rights Reserved
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PAS 40: Investment Property

- In case of excess cash.


- Recognized as an asset when:
- Future economic benefits will flow.
- Cost can be measured reliably.

Investment Property
1. Real property (land or building)
a. Land
- Long term capital appreciation.
- “Bumili ng land, pero walang paggagamitan” = Investment Property
- Held for undetermined future use.
b. Building
- Lease out under 1 or more operating lease (pinapaupahan)
- Vacant that is held to be leased out under 1 or more operating lease
- Walang paggagamitan, intention is 1 or more operating lease
- Pinapaupahan = Investment Property

- Property being constructed or developed for future use as investment


property
- Once classified as IP, it will be measured.

Scenario:
- Owner occupied property = PPE
- “Ginagamit for productions, admin purposes, operations, supply of (goods/services)”

Example:
- 1st floor as admin office (ginagamit for admin, production, operation) = PPE
- 2nd to 5th floor as rental to others (operating lease) = Investment Property
- “If kaya paghiwalayin, then i-separate”
- Separable: Stand alone selling price. Leased out under finance list.
- If inseparable:

Cannot be sold separately:


- Insignificant portion (⅓ of first floor) for admin portion.
- Masusunod ang majority.
- 4 floors and ⅓ = Majority
- Entire building as investment property

Provisions of ancillary services:


- Services provided by the owner to the occupants.
a. Significant = PPE
- Services provided by the hotel.
- Nililinis ‘yung room before i-occupy. Then, affected yung client if hindi
maayos = mababawasan ng customers = Ancillary services is important =
Significant = PPE
b. Insignificant = Investment Property
- Provides security maintenance services.

Stream of cash flows


- Rental cash flows = Investment Property
- Room revenue (Income, part of operation) = PPE
- Ex. Hotels (in exchange for payment)

Initial Recognition
- AT COST.
- Formula:
Net purchase price xx
Add: DAC’s (Transaction cost) xx
Initial cost xx

Subsequent Measurement
1. Cost Model
Carrying value = Cost - Accu. Dep. - Accu. Impl. Loss.

2. Fair Value Model = Not same in Revaluation Model


Carrying value = Fair value as of end of reporting period.

- Note: Ignore costs to sell.

- Applies to all investment property (land and building shall have the same model)

Note:
- Property interest held under OL reported as I.P. = Fair Value Model only.

Cost Model Fair Value Model


Initial Recognition Cost Cost
Depreciation expense Subject to Dep. Not subject to Dep.
Impairment Testing Yes (CV>RA) None
Changes in FV None Yes (reported in P/L)
Rental income Yes Yes

Change in use of IP (Transfers)


- Made only when there is a change in use.
- Examples:
- Commencement of owner occupation (IP to PPE)
- Commencement of a development with a view of resale (IP to Inventory)
- Intention to sell.
- End of owner occupation (PPE to IP)
- Commencement of operating lease to another party (Inventory to IP)
- Instead na ibenta, paupahan na lang.

If transfer is under cost model:


- Reclassify without any gain or loss.
1. CV of the asset transferred = Initial value of new classification
2. No gain/loss on reclassification

IP to PPE:
PPE xx
Accu. Dep xx
IP (Cost) xx
Accu. Dep xx

IP to Inventory: Inventory has no depreciation.


Inventory (CV) xx
Accu. Dep. xx
IP (Cost) xx

PPE to IP:
IP xx
Accu. Dep. xx
PPE xx
Accu. Dep. xx

Inventory to IP:
IP xx
Inventory xx

If transfer is under fair value model:


- Always be at fair value.
- Kung binigyan ng CTS = ignore.
- No depreciation expense.

1. IP to PPE
2. IP to Inventory
3. Inventory to IP
- AT FAIR VALUE.
- Any gain/loss on reclassification is reported in P/L.
4. PPE to IP
a. Decrease in value (FV is less than CV of the PPE)
- REPORTED IN PROFIT OR LOSS
- If there is a balance in Revaluation Surplus = ubusin muna but if wala,
diretso loss.
b. Increase in value (FV is higher than CV)
- REVALUATION SURPLUS FIRST (OCI)

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