Section 16 Investment Property
Scope of this section
16.1 This section applies to accounting for investments in land or buildings that meet the definition of investment property in paragraph 16.2 and some property interests held by a lessee under an operating lease (see paragraph 16.3) that are treated like investment property. Only investment property whose fair value can be measured reliably without undue cost or effort on an ongoing basis is accounted for in accordance with this section at fair value through profit or loss. All other investment property is accounted for using the cost model in Section 17 Property, Plant and Equipment and remains within the scope of Section 17 unless a reliable measure of fair value becomes available and it is expected that fair value will be reliably measurable on an ongoing basis.
Definition and initial recognition of investment property
16.2 Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, instead of for:
- use in the production or supply of goods or services or for administrative purposes; or
- sale in the ordinary course of business.
16.3 A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property using this section if, and only if, the property would otherwise meet the definition of an investment property and the lessee can measure the fair value of the property interest without undue cost or effort on an ongoing basis. This classification alternative is available on a property-by-property basis.
16.4 Mixed use property shall be separated between investment property and property, plant and equipment. However, if the fair value of the investment property component cannot be measured reliably without undue cost or effort, the entire property shall be accounted for as property, plant and equipment in accordance with Section 17.
Measurement at initial recognition
16.5 An entity shall measure investment property at its cost at initial recognition. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure such as legal and brokerage fees, property transfer taxes and other transaction costs. If payment is deferred beyond normal credit terms, the cost is the present value of all future payments. An entity shall determine the cost of a self-constructed investment property in accordance with paragraphs 17.10–17.14.
16.6 The initial cost of a property interest held under a lease and classified as an investment property shall be as prescribed for a finance lease by paragraph 20.9s, even if the lease would otherwise be classified as an operating lease if it was in the scope of Section 20. In other words, the asset is recognised at the lower of the fair value of the property and the present value of the minimum lease payments. An equivalent amount is recognised as a liability in accordance with paragraph 20.9.
Measurement after recognition
16.7 Investment property whose fair value can be measured reliably without undue cost or effort shall be measured at fair value at each reporting date with changes in fair value recognised in profit or loss. If a property interest held under a lease is classified as investment property, the item accounted for at fair value is that interest and not the underlying property. Paragraphs 11.27–11.32 provides guidance on determining fair value. An entity shall account for all other investment property using the cost model in Section 17.
16.8 If a reliable measure of fair value is no longer available without undue cost or effort for an item of investment property measured using the fair value model, the entity shall thereafter account for that item in accordance with Section 17 until a reliable measure of fair value becomes available. The carrying amount of the investment property on that date becomes its cost under Section 17. Paragraph 16.10(e)(iii) requires disclosure of this change. It is a change of circumstances and not a change in accounting policy.
16.9 Other than as required by paragraph 16.8, an entity shall transfer a property to, or from, investment property only when the property first meets, or ceases to meet, the definition of investment property.
16.10 An entity shall disclose the following for all investment property accounted for at fair value through profit or loss (paragraph 16.7):
- the methods and significant assumptions applied in determining the fair value of investment property.
- the extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and class of the investment property being valued. If there has been no such valuation, that fact shall be disclosed.
- the existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
- contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.
- a reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing separately:
- additions, disclosing separately those additions resulting from acquisitions through business combinations;
- net gains or losses from fair value adjustments;
- transfers to and from investment property carried at cost less accumulated depreciation and impairment (see paragraph 16.8);
- transfers to and from inventories and owner-occupied property; and
- other changes.
This reconciliation need not be presented for prior periods.
16.11 In accordance with Leases, the owner of an investment property provides lessors’ disclosures about leases into which it has entered. An entity that holds an investment property under a finance lease or operating lease provides lessees’ disclosures for finance leases and lessors’ disclosures for any operating leases into which it has entered.
See also: The IFRS Foundation