IAS 40 – Investment Property

IAS 40 – Investment Property

Objective: the accounting treatment for investment property and related disclosures.

 Investment property is a land or buildings held to earn rentals or for capital appreciation or both, whether by the owner or under finance lease. IAS 40 does not apply to owner-occupied property or property that is being constructed or developed for future use as investment property or property held for sale in the ordinary course of the business. IAS 40 permits to an entity to choose either the fair value model or the cost model.

1. Fair value model investment property is measured at fair value and changes in fair value recognized in the income statement.

2. Cost model investment property is measured at depreciated cost less any accumulated impairment. Fair value of the investment property must still be disclosed.

The chosen measurement model must be applied to all of the entity investment property. Changes from one model to the other is permitted if it will be result in more appropriate presentation, and if fair value cannot be determine then the cost model is used. A property interest held by lessee under an operating lease can qualify as investment property provided that lessee use the fair value model.

Disclosures include

1. Method of determining fair value.

2. Extent of use of independent value's in determining fair value.

3. Criteria that were used to classify property as investment property.

4. Amount recognized in profit and loss.

The Differences and Similarities between US GAAP Law and IFRS 

Significant Differences & Similarities:

IFRS	US Law  GAAP
Investment property is property held to earn rental income or for capital appreciation or for both.	Unlike IFRS there is no specific definition of investment property.	Definition of Investment Property
Property held by a lessee under operating lease may be classified as investment property if the definition of investment property otherwise is met and the lessee measures investment property at fair value.	Unlike IFRS property held by a lessee under an operating lease cannot be recognized in the balance sheet.	Property held by Lessee Under Operating Lease
A portion of a dual-use property is classified as investment property only if the portion could be sold or leased out under a finance lease. Otherwise entire property is classified as property, plant and equipment, unless only an "insignificant" portion is held for own use.	Unlike IFRS there is no guidance on how to classify dual-use of property. Instead the entire property is accounted for as property, plant and equipment.	Dual-Use of  Property
Investment property is recognized initially at cost	Like IFRS Investment property is recognized initially at cost	Recognition
Disclosure of the fair value of all investment property is required, regardless of the measurement model used.	Unlike IFRS, there is no requirement to disclose the fair value of investment property.	Disclosure of Fair Value
Subsequent expenditure is capitalized only when it is probable that it will give rise to future economic benefits.	Like IFRS subsequent expenditure is capitalized only when it is probable that it will give rise to future economic benefits.	Expenditure
IFRS	US Law  GAAP
Transfers to or from investment property can be made only when there has been a change in the actual use of the property Changes in intention are not relevant.	Unlike IFRS investment property is accounted for as property plant and equipment, and there no transfers to or from an "investment property" category.	Transfers to or from Investment property