Exploring Accounting Options for Investment Property

School: University of Waterloo - Course: BUS 111W - Subject: Accounting

MGAC01H3 - Intermediate Financial Accounting I EXPLORING THE CPA HANDBOOK ItemStandard QuestionResponse 1IFRSDescribe the accountingoption for investment property With the exception noted in paragraph 32A, an entity shall choose as its accounting policy either the fair value model in paragraphs 33-55 or the cost model in paragraph 56 and shall apply that policy to all of its investment property. IAS 40.30 "An entity may: (a) choose either the fair value model or the cost model for all investment property backing liabilities that pay a return linked directly to the fair value of, or returns from, specified assets including that investment property; and (b) choose either the fair value model or the cost model for all other investment property, regardless of the choice made in (a)." IAS.40.32A In determining the carrying amount of investment property under the fair value model, an entity does not double-count assets or liabilities that are recognised as separate assets or liabilities. For example: (a) equipment such as lifts or air- conditioning is often an integral part of a building and is generally included in the fair value of the investment property, rather than recognised separately as property, plant and equipment. (b) if an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture, because the rental 1

income relates to the furnished office. When furniture is included in the fair value of investment property, an entity does not recognise that furniture as a separate asset. (c) the fair value of investment property excludes prepaid or accrued operating lease income, because the entity recognises it as a separate liability or asset. (d) the fair value of investment property held by a lessee as a right- of-use asset reflects expected cash flows (including variable lease payments that are expected to become payable). Accordingly, if a valuation obtained for a property is net of all payments expected to be made, it will be necessary to add back any recognised lease liability, to arrive at the carrying amount of the investment property using the fair value model. IAS 40.50 After initial recognition, an entity that chooses the cost model shall measure investment property: (a) in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations if it meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale); (b) in accordance with IFRS 16 if it is held by a lessee as a right-of-use asset and is not held for sale in accordance with IFRS 5; and (c) in accordance with the requirements in IAS 16 for the cost model in all other cases.