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Investment Property - Coggle Diagram
Investment Property
Objective and Scope
- Owner-Occupied Property and property held for other purposes do not qualify as Investment property
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Owner-occupied property is property that is used by the owner to carry out their own operations,
- Properties used for dual purposes are classified based on whether they:
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- Investment Property can be either Land or Buildings, and it can also be undeveloped land that's held for the purpose of earning rental income or future capital appreciation.
- If the portions of the property can be sold or leased separately, the entity accounts for them separately as investment property and owner-occupied property.
If the property cannot be sold separately, it is only classified as investment property if an insignificant portion is used for production or supply of goods or services or for administrative purposes, either by the owner or the lessee.
- Investment property is property held to earn rentals or for capital appreciation
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- What constitutes "an insignificant portion" is left to the discretion of management.
Recognition
- Investment property is recognized when it meets the criteria of the Conceptual Framework
- Probable future economic benefits to the entity
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- Reliable measurement of cost
- Investment property under construction
- Is measured using either the cost model or the fair value model
- If fair value cannot be reliably determined
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- is accounted for by applying IAS 40
Initial Recognition
- Self-constructed investment property's cost is incurred by the company until the construction or development is substantially completed as intended by management.
These costs will be capitalised to investment property's cost in the company's financial statements until the property is substantially completed.
- Start-up costs, initial operating losses, wasted materials, or unproductive labor costs are :star:not included in the cost.
- If payment is deferred, the cost is the cash price equivalent, and the difference between cost and proceeds is recognized as interest.
- Cost includes the purchase price and directly attributable expenses like
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- The initial measurement of investment properties acquired through an exchange transaction is the same as that of property, plant, and equipment.
Subsequent Measurement
- Two methods of measurement are allowed: cost model or fair value model
- A change from cost model to fair value model is a change in accounting policy
- IAS 40 discourages or prohibits a change from fair value model to cost model
1.) Fair Value Model
- If entity adopts fair value model, all investment property must be valued at fair value
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- Fair value is defined as the price in an orderly transaction between market participants
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2.) Cost Model
- Investment property held for sale is measured under IFRS 5 and is not covered in this chapter.
- If the cost model is used, investment property is measured at Cost LESS Accumulated Depreciation AND Impairment Losses.
Subsequent Expenditure
- On recognized investment property is only capitalized if it meets requirements in IAS 16 and IAS 40
If it doesn't meet those criteria, expenses are recognized as repairs and maintenance in profit or loss statement.
- This treatment is similar to that of property, plant and equipment in IAS 16.
Subsequent expenditure to bring the asset to working condition after purchase can be capitalized if it meets recognition criteria of Framework.
Derecognition
- The difference between net disposal proceeds and carrying amount is recognized in the profit or loss section of the statement of profit or loss and other comprehensive income as profit or loss.
- Journal entries are required to record the recognition, fair value adjustment, and derecognition of investment property.
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- Investment property can be derecognized when it is disposed of or permanently withdrawn from use with no further economic benefits expected.
Disclosure
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In the profit and loss section, the following must be disclosed:
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- Cumulative change in fair value when investment property is sold from a cost model to fair value model.
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