Ch9-HKAS40

8/13/2019 Ch9-HKAS40

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Chapter 9 HKAS 40 Investment Property

1. Objectives

1.1 Define an investment property (投資性房地 ).

1.2 Explain the accounting treatment required by H!" #$ in respect of investment

property and the necessary disclosures.

1.% Describe the recognition criteria for investment properties.

1.# Describe the subsequent measurement under H!" #$.

1.& 'utline presentation and disclosure requirements for investment properties.

D i s c l o s u r e

( e q u i r e m e n t s

) e a s u r e m e n t

" u b s e q u e n t t o

* n i t i a l

( e c o g n i t i o n

( e c o g n i t i o n

* n v e s t m e n t+ r o p e r t i e s

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2. e!inition

(A) Investment property

2.1 DEFINITION

*nvestment property is property (i.e. land and/or buildings) held to earn rentals or

for capital appreciation or both0 rather than for use or for sale in the ordinary course

of business.

2.2 he folloing are examples of investment property3

(i) land held for longterm capital appreciation rather than for shortterm sale in

the ordinary course of business.

(ii) land held for a currently undetermined future use. (*f an entity has not

determined that it ill use the land as oneroccupied property or for short

term sale in the ordinary course of business0 the land is regarded as held for

capital appreciation.)

(iii) a building oned by the entity (or held by the entity under a finance lease) and

leased out under one or more operating leases.

(iv) a building that is vacant but is held to be leased out under one or more

operating leases.

2.% he folloing items are not investment properties3

(i) 'ner occupied property. he property is being held for use (as a factory or

office) and not for its investment potential. *t should be accounted for under

H!" 14. +roperty occupied by another group company ould come under

this heading.

(ii) +roperty held for sale in the normal course of business (e.g. a house builder) is

inventories accounted for under H!" 2.

(iii) +roperty being constructed for third parties is accounted for as a constructioncontract under H!" 11.

(iv) +roperty being constructed or developed for future use as investment property.

his ill be accounted for as capital or5 in progress under H!" 14 until the

asset is finished and transferred to investment properties.

2.# EXERCIE !

6hich of the folloing are investment properties7 "tate hich "tandard applies to

them.

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(a) ! field of land0 purchased for its investment potential.

(b) ! building occupied by a business as its head office0 hose capital value is

rapidly appreciating.(c) ! building hich is surplus to requirements and is for sale.

(d) ! building acquired under a finance lease for its investment potential.

ol"tion#

($) D"al "se properties

2.# D"al %se &roperties

"ome properties nay have a dual use0 i.e. part o' the property is "sed as investment

property and part o' the property is held 'or on "se. H!" #$ sets outrequirements in respect of hether any part of a dual use property can be regarded as

investment property. hese requirements are that here properties have dual use0 the

investment property part ill only be classified as investment property if one of the

folloing conditions is met3

(a) the portions could be sold separately (or leased out separately under a finance

lease)8 or

(b) the portion held for on use is an insignificant part of the property as a hole

(in hich case the hole property is classified as investment property).

2.& his means0 for example0 that if 9$: of the floor area is let out to tenants and 2$: is

used by the oners0 and if the portion leased out could not be separately sold or let

under a finance lease0 the hole property ill have to be classified as ;onuse<0

since 2$: is not an insignificant amount.

2.4 No de'inition or "idance on the meanin o' *insini'icant* is given. *n

determining hether an amount is =insignificant= management should ta5e qualitative

factors into account as ell as quantitative ones. >or example0 if the entity only retains

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the use of a basement to an office building0 this may be regarded as insignificant0 even

though the same floor area might be regarded as not insignificant if it ere prime

office space in that building. Hoever0 management should develop criteria for

determining =insignificant= to be applied ob?ectively to each property hen a portfolio

of similar properties is held.

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". #eco$nition

%.1 Reconition Criteria

*nvestment property shall be recognised as an asset hen0 and only hen3(i) it is probable that the future economic benefits that are associated ith the

investment property ill flo to the entity8 and

(ii) the cost of the investment property can be measured reliably.

%.2 !n entity evaluates under this recognition principle all its investment property costs at

the time they are incurred. hese costs include costs incurred initially to acquire an

investment property and costs incurred subsequently to add to0 replace part of0 or

service a property.

4. %eas&rement

(A) +eas"rement at reconition

#.1 ,ey &oint

!n investment property shall be meas"red initially at its cost. Transaction costs

shall be incl"ded in the initial meas"rement.

#.2 he cost of a purchased investment property comprises its purchase price and any

directly attributable expenditure. Directly attributable expenditure includes0 for

example0 professional fees for legal services0 property transfer taxes and other

transaction costs.

#.% he cost of a selfconstructed investment property is its cost at the date hen the

construction or development is complete.

#.# he cost of an investment property is not increased by3

(i) start-"p costs (unless they are necessary to bring the property to the condition

necessary for it to be capable of operating in the manner intended by

management)0

(ii) operatin losses incurred before the investment property achieves the planned

level of occupancy0 or

(iii) abnormal amo"nts of asted material0 labour or other resources incurred in

constructing or developing the property.

#.& he 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 H!" 1@0 i.e. the asset shall be

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recognised at the loer of the fair value of the property and the present value of the

minimum lease payments.

($) +eas"rement a'ter reconition

#.4 Ander H!" #$0 there is a free policy choice made for the investment property as a

hole beteen the cost model and the fair value model0 ith the exception of3

(i) those investment properties that bac5 liabilities hich pay a return directly

lin5ed to the fair value of0 or returns from0 specified assets including that

investment property. *n this case0 a separate fair value or cost policy choice can

be made for this subset of investment property8

(ii) those investment property hich it is established hen the property as first

acquired that the fair value is not reliably determinable on a continuing basis.

*n this case the H!" 14 cost model shall be used for that individual property

until its disposal8 and in all other cases8

(iii) here an entity decides to account for any of its properties held "nder

operatin leases as investment property. *n this case0 the 'air val"e model

m"st be "sed for that lease and for all of the entityBs other investment

properties0 other than the to exceptions highlighted immediately above.

(a) The cost model

#.@ Cost +odel

!fter initial recognition0 an enterprise that chooses the cost model should measure all

of its investment property using the benchmar5 treatment in H!" 14 ;+roperty0

+lant and Equipment<0 that is at cost less depreciation and impairment losses.

#.9 !n enterprise that chooses the cost model sho"ld disclose the 'air val"e of its

investment property.

(b) Fair value model (公允價模式)

#.- Fair .al"e +odel

Ander fair value model0 the initial recognition and measurement ill still be at cost.

"ubsequent measurement ill be at fair value.

!ll ains and losses on revaluation ill be reported in the income statement as

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part of the profit or loss for the period. !lso0 no depreciation is required to charge to

profit or loss.

#.1$ >air value ill normally be the mar5et price. here should be no deduction fortransaction costs.

#.11 Reconisin ains and losses in the income statement is revol"tionary. +reviously0

these gains ere ta5en to reserves and not claimed as realiCed profits. he profit or

loss on disposal of an investment property ill be based upon the carrying value in the

balance sheet.

#.12 >air value ill normally be obtainable by reference to current prices on an active

mar5et for similar properties in the same location. *f no such mar5et exists then the

folloing values should be considered3

(i) current prices on an active mar5et for properties of a different nature0 condition

or location0 ad?usted to reflect those differences8

(ii) recent prices in less active mar5ets8

(iii) discounted cash flo pro?ections based on reliable estimates of future cash

flos.

#.1% *f it is impossible to meas"re 'air val"e reliably0 then the cost-based model sho"ld

be adopted.

#.1# he adoption of the fair value model or the cost model ill be a policy choice.

herefore0 once either model has been chosen0 any change from one to the other needs

to meet the requirements of H!" 9 ;!ccounting +olicies0 hanges in !ccounting

Estimates and Errors<. *n particular0 a voluntary change can only be made if it ill

result in a more appropriate presentation. H!" #$ states that this is hihly "nli/ely

in the case of a chane 'rom the 'air val"e model to the cost model.

#.1# H!" #$ states that an entity is encouraged0 but not required0 to determine the fair

value of investment property on the basis of a valuation by an independent valuer ho

holds a recogniCed and relevant professional qualification and has recent experience in

the location and category of the investment property being valued.

(C) Trans'ers

#.1& ransfers to or from investment property can only be made if there is a change of use.

here are several possible situations3

(i) ransfer from investment property to oneroccupied property.

Ase the fair value at the date of the change for subsequent accounting under

H!" 14.

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(ii) ransfer from investment property to inventory.

Ase the fair value at the date of the change for subsequent accounting under

H!" 2 ;*nventories<.

(iii) ransfer from oneroccupied property to investment property to be carried at

fair value.

H!" 14 (cost less depreciation) ill have been applied up to the date of the

change. 'n adopting fair value there ill normally be an increase in value.

his ill be ta5en to the revaluation reserve in accordance ith H!" 14. *f

the fair value valuation causes a decrease in value0 then it should be charged to

the statement of comprehensive income.

he only exceptions to these treatments ill arise if the property has

previously been revalued upards0 hen a decrease may be against the

resultant revaluation surplus0 or hen an impairment loss has previously been

recogniCed0 hen an increase may be recogniCed in the statement of

comprehensive income.

(iv) ransfer from inventories to investment property to be carried at fair value.

!ny differences in the carrying amount ill be recognised in the statement of

comprehensive income.

'. isc(os&re #e)&irements

&.1 Enterprises using both the cost model and the fair value model should disclose the

folloing amounts included in the income statement3

(i) rental income

(ii) operating expenses for investment properties

(iii) restrictions on the realisability of investment property or the remittance ofincome and proceeds of disposal

(iv) obligations to purchase0 construct or develop properties.

&.2 Enterprises using the fair value model should also disclose3

(i) methods and assumptions used in determining fair value

(ii) the use of professional valuers

(iii) additions and disposals during the period

(iv) net gains or losses from fair value ad?ustments

(v) transfers to and from investment property.

&.% Enterprises using the cost model should disclose3

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(i) depreciation methods

(ii) useful lives or depreciation rates

(iii) movements on cost and depreciation during the year

(iv) the fair value of the investment property (or an explanation of hy it cannot be

obtained).

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he decision tree belo summaries hich H!" apply to various 5inds of property.

,-1$

ost model

es

es

es

,o

,o

,o

"tart

*s the property held for

sale in the ordinary

course of business7

*s the property oneroccupied7

*s the property being

constructed or

developed7

he property is an

investment property

6hich model is chosen

for all investment

properties7

Ase H!" 2

Ase H!" 14 (cost

model or revaluationmodel)

Ase H!" 14 (cost

model or revaluation

model) until completion

Ase H!" 14 (cost

model) ith disclosure

from H!" #$

Ase H!" #$>air value model

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Ch9-HKAS40