International Accounting Standard 40 Investment Property (IAS 40) is set out in paragraphs 1–86. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 40 should be read in the context of its objective and the IASB’s Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting . IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [ Refer: IAS 8 paragraphs 10–12]
The objective of this Standard is to prescribe the accounting treatment for investment property and related disclosure requirements.
This Standard shall be applied in the recognition, measurement and disclosure of investment property .
This Standard does not apply to:
biological assets related to agricultural activity (see IAS 41 Agriculture and IAS 16 Property, Plant and Equipment ); and
mineral rights and mineral reserves such as oil, natural gas and similar non‑regenerative resources.
The following terms are used in this Standard with the meanings specified:
Carrying amount is the amount at which an asset is recognised in the statement of financial position.
Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share‑based Payment .
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13 Fair Value Measurement ).
Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee as a right-of-use asset [ Refer: Basis for Conclusions paragraph BC10A and IFRS 16 Basis for Conclusions paragraphs BC295 and BC178] ) to earn rentals or for capital appreciation or both, rather than for:
use in the production or supply of goods or services or for administrative purposes; [ Refer: definition of owner-occupied property] or
sale in the ordinary course of business. [ Refer: paragraph 9(a)]
Owner‑occupied property is property held (by the owner or by the lessee as a right-of-use asset) for use in the production or supply of goods or services or for administrative purposes.
[ Refer: Basis for Conclusions paragraphs B30, B31, B34 and B37–B39]Investment property is held to earn rentals or for capital appreciation or both. Therefore, an investment property generates cash flows largely independently of the other assets held by an entity. This distinguishes investment property from owner‑occupied property. The production or supply of goods or services (or the use of property for administrative purposes) generates cash flows that are attributable not only to property, but also to other assets used in the production or supply process. IAS 16 applies to owned owner‑occupied property [ Refer: IAS 16 paragraph 2] and IFRS 16 Leases applies to owner-occupied property held by a lessee as a right-of-use asset [ Refer: IFRS 16 paragraph 3] .
The following are examples of investment property :
land held for long‑term capital appreciation rather than for short‑term sale in the ordinary course of business. [ Refer: paragraph 9(a)]
land held for a currently undetermined future use. (If an entity has not determined that it will use the land as owner‑occupied property or for short‑term sale in the ordinary course of business, [ Refer: paragraph 9(a)] the land is regarded as held for capital appreciation.) [ Refer: Basis for Conclusions paragraph B67(b)(ii)]
a building owned by the entity (or a right-of-use asset relating to a building held by the entity) and leased out under one or more operating leases.
a building that is vacant but is held to be leased out under one or more operating leases.
property that is being constructed or developed for future use as investment property.
The following are examples of items that are not investment property and are therefore outside the scope of this Standard:
property intended for sale in the ordinary course of business or in the process of construction or development for such sale (see IAS 2 Inventories ), for example, property acquired exclusively with a view to subsequent disposal in the near future or for development and resale.
owner‑occupied property (see IAS 16 and IFRS 16), including (among other things) property held for future use as owner‑occupied property, property held for future development and subsequent use as owner‑occupied property, property occupied by employees (whether or not the employees pay rent at market rates) and owner‑occupied property awaiting disposal.
property that is leased to another entity under a finance lease.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portions could not be sold separately, the property is investment property only if an insignificant portion [ Link to Basis for Conclusions paragraph B39 for why quantitative guidance has not been given] is held for use in the production or supply of goods or services or for administrative purposes.
In some cases, an entity provides ancillary services to the occupants of a property it holds. An entity treats such a property as investment property if the services are insignificant to the arrangement as a whole. An example is when the owner of an office building provides security and maintenance services to the lessees who occupy the building.
In other cases, the services provided are significant. For example, if an entity owns and manages a hotel, services provided to guests are significant to the arrangement as a whole. Therefore, an owner‑managed hotel is owner‑occupied property , rather than investment property .
It may be difficult to determine whether ancillary services are so significant [ Link to Basis for Conclusions paragraph B39 for why quantitative guidance has not been given] that a property does not qualify as investment property . For example, the owner of a hotel sometimes transfers some responsibilities to third parties under a management contract. The terms of such contracts vary widely. At one end of the spectrum, the owner’s position may, in substance, be that of a passive investor. At the other end of the spectrum, the owner may simply have outsourced day‑to‑day functions while retaining significant exposure to variation in the cash flows generated by the operations of the hotel.
Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so that it can exercise that judgement consistently in accordance with the definition of investment property and with the related guidance in paragraphs 7–13. Paragraph 75(c) requires an entity to disclose these criteria when classification is difficult.
Judgement is also needed to determine whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of IFRS 3 Business Combinations . Reference should be made to IFRS 3 to determine whether it is a business combination. The discussion in paragraphs 7–14 of this Standard relates to whether or not property is owner‑occupied property or investment property and not to determining whether or not the acquisition of property is a business combination as defined in IFRS 3. Determining whether a specific transaction meets the definition of a business combination as defined in IFRS 3 and includes an investment property as defined in this Standard requires the separate application of both Standards.
In some cases, an entity owns property that is leased to, and occupied by, its parent or another subsidiary. The property does not qualify as investment property in the consolidated financial statements, because the property is owner‑occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is investment property if it meets the definition in paragraph 5. Therefore, the lessor treats the property as investment property in its individual financial statements.
An owned investment property shall be recognised [ Refer: Conceptual Framework paragraph 5.1] as an asset when, and only when:
it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and
the cost of the investment property can be measured reliably.
An entity evaluates under this recognition principle [ Refer: paragraph 16] all its investment property costs at the time they are incurred. These costs include costs incurred initially to acquire an investment property and costs incurred subsequently [ Refer: Basis for Conclusions paragraphs B40–B42] to add to, replace part of, or service a property.
Under the recognition principle in paragraph 16, an entity does not recognise in the carrying amount of an investment property the costs of the day‑to‑day servicing of such a property. Rather, these costs are recognised in profit or loss as incurred. Costs of day‑to‑day servicing are primarily the cost of labour and consumables, and may include the cost of minor parts. The purpose of these expenditures is often described as for the ‘repairs and maintenance’ of the property.
Parts of investment properties may have been acquired through replacement. For example, the interior walls may be replacements of original walls. Under the recognition principle, an entity recognises in the carrying amount of an investment property the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria [ Refer: paragraph 16] are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard.
An investment property held by a lessee as a right-of-use asset shall be recognised in accordance with IFRS 16. [ Refer: IFRS 16 paragraph 22]
An owned investment property shall be measured initially at its cost . Transaction costs shall be included in the initial measurement.
The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs.
The cost of an investment property is not increased by:
start‑up 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),
operating losses incurred before the investment property achieves the planned level of occupancy, or
abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property.
If payment for an investment property is deferred, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the period of credit.
One or more investment properties may be acquired in exchange for a non‑monetary asset or assets, or a combination of monetary and non‑monetary assets. The following discussion refers to an exchange of one non‑monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an investment property is measured at fair value unless (a) the exchange transaction lacks commercial substance [ Refer: paragraph 28] or (b) the fair value of neither the asset received nor the asset given up is reliably measurable [ Refer: paragraph 29] . The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.
An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:
the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred, or
the entity‑specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange, and
the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.
For the purpose of determining whether an exchange transaction has commercial substance, the entity‑specific value of the portion of the entity’s operations affected by the transaction shall reflect post‑tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations.
The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If the entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident.
An investment property held by a lessee as a right-of-use asset shall be measured initially at its cost in accordance with IFRS 16. [ Refer: IFRS 16 paragraphs 23–25]
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 .
[ Refer: Basis for Conclusions paragraphs BC11–BC14, B4 and B43–B51]IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors states [ Refer: IAS 8 paragraph 14(b)] that a voluntary change in accounting policy shall be made only if the change results in the financial statements providing reliable E1 and more relevant [ Refer: Conceptual Framework paragraphs 2.6-2.11] information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. It is highly unlikely that a change from the fair value model [ Refer: paragraphs 33–55] to the cost model [ Refer: paragraph 56] will result in a more relevant presentation.
[The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).]
This Standard requires all entities to measure the fair value of investment property , for the purpose of either measurement (if the entity uses the fair value model [ Refer: paragraph 33] ) or disclosure [ Refer: paragraph 79(e)] (if it uses the cost model [ Refer: paragraph 56] ). An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. [ Refer: Basis for Conclusions paragraphs B55 and B56]
choose either the fair value model [ Refer: paragraphs 33–55] or the cost model [ Refer: paragraph 56] 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
choose either the fair value model or the cost model for all other investment property, regardless of the choice made in (a).
| Aggregated measurement [member] Disclosure | Member | IAS 41.50 Disclosure IFRS 13.93 a Disclosure | 823000, 824180, 825100, 990000 |
| At cost [member] Disclosure | Member | IAS 41.50 Disclosure IAS 41.55 Disclosure | 824180, 825100 |
| At fair value [member] Disclosure | Member | IAS 41.50 Disclosure IFRS 13.93 a Disclosure | 823000, 824180, 825100 |
| Disclosure of detailed information about investment property [table] Disclosure | Table | 825100 | |
| Disclosure of detailed information about investment property [text block] Disclosure | Text block | 825100 | |
| Fair value model [member] Disclosure | Member | 825100 | |
| Measurement [axis] Disclosure | Axis | IAS 41.50 Disclosure IFRS 13.93 a Disclosure | 823000, 824180, 825100, 990000 |
Some entities operate, either internally or externally, an investment fund that provides investors with benefits determined by units in the fund. Similarly, some entities issue insurance contracts with direct participation features, for which the underlying items include investment property. For the purposes of paragraphs 32A–32B only, insurance contracts include investment contracts with discretionary participation features. Paragraph 32A does not permit an entity to measure property held by the fund (or property that is an underlying item) partly at cost and partly at fair value. (See IFRS 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard.)
[ Refer: Basis for Conclusions paragraph B34 and IFRS 17 Basis for Conclusions paragraph BC65(c)]If an entity chooses different models for the two categories described in paragraph 32A, sales of investment property between pools of assets measured using different models shall be recognised at fair value and the cumulative change in fair value shall be recognised in profit or loss. Accordingly, if an investment property is sold from a pool in which the fair value model [ Refer: paragraphs 33–55] is used into a pool in which the cost model [ Refer: paragraph 56] is used, the property’s fair value at the date of the sale becomes its deemed cost.
After initial recognition, an entity that chooses the fair value model shall measure all of its investment property at fair value , except in the cases described in paragraph 53.
A gain or loss arising from a change in the fair value of investment property shall be recognised in profit or loss for the period in which it arises.
When measuring the fair value of investment property in accordance with IFRS 13, an entity shall ensure that the fair value reflects, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions.
When a lessee uses the fair value model to measure an investment property that is held as a right-of-use asset, it shall measure the right-of-use asset, and not the underlying property, at fair value.
IFRS 16 specifies the basis for initial recognition of the cost of an investment property held by a lessee as a right-of-use asset. [ Refer: IFRS 16 paragraphs 23–25] Paragraph 33 requires the investment property held by a lessee as a right-of-use asset to be remeasured, if necessary, to fair value if the entity chooses the fair value model. When lease payments are at market rates, the fair value of an investment property held by a lessee as a right-of-use asset at acquisition, net of all expected lease payments (including those relating to recognised lease liabilities), should be zero. Thus, remeasuring a right-of-use asset from cost in accordance with IFRS 16 to fair value in accordance with paragraph 33 (taking into account the requirements in paragraph 50) should not give rise to any initial gain or loss, unless fair value is measured at different times. This could occur when an election to apply the fair value model is made after initial recognition.
In exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the variability in the range of reasonable fair value measurements will be so great, and the probabilities of the various outcomes so difficult to assess, that the usefulness of a single measure of fair value is negated. This may indicate that the fair value of the property will not be reliably measurable on a continuing basis (see paragraph 53).
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:
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.
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 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.
the fair value of investment property excludes prepaid or accrued operating lease income, because the entity recognises it as a separate liability or asset.
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.
In some cases, an entity expects that the present value of its payments relating to an investment property (other than payments relating to recognised liabilities) will exceed the present value of the related cash receipts. An entity applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets to determine whether to recognise a liability and, if so, how to measure it.
There is a rebuttable presumption that an entity can reliably measure the fair value of an investment property on a continuing basis. However, in exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the fair value of the investment property is not reliably measurable on a continuing basis. This arises when, and only when, the market for comparable properties is inactive (eg there are few recent transactions, price quotations are not current or observed transaction prices indicate that the seller was forced to sell) and alternative reliable measurements of fair value (for example, based on discounted cash flow projections) are not available. If an entity determines that the fair value of an investment property under construction is not reliably measurable but expects the fair value of the property to be reliably measurable when construction is complete, it shall measure that investment property under construction at cost until either its fair value becomes reliably measurable or construction is completed (whichever is earlier). [ Refer: Basis for Conclusions paragraphs BC15–BC17] If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably measurable on a continuing basis, the entity shall measure that investment property using the cost model in IAS 16 for owned investment property [ Refer: paragraph 56(c)] or in accordance with IFRS 16 for investment property held by a lessee as a right-of-use asset [ Refer: paragraph 56(b)] . The residual value of the investment property shall be assumed to be zero. The entity shall continue to apply IAS 16 or IFRS 16 until disposal of the investment property.
Once an entity becomes able to measure reliably the fair value of an investment property under construction that has previously been measured at cost, it shall measure that property at its fair value. Once construction of that property is complete, it is presumed that fair value can be measured reliably. If this is not the case, in accordance with paragraph 53, the property shall be accounted for using the cost model in accordance with IAS 16 for owned assets [ Refer: paragraph 56(c)] or IFRS 16 for investment property held by a lessee as a right-of-use asset [ Refer: paragraph 56(b)] .
The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition. An entity that has measured an item of investment property under construction at fair value may not conclude that the fair value of the completed investment property cannot be measured reliably.
In the exceptional cases when an entity is compelled, for the reason given in paragraph 53, to measure an investment property using the cost model in accordance with IAS 16 or IFRS 16 [ Refer: paragraph 56(b) and (c)] , it measures at fair value all its other investment property, including investment property under construction. In these cases, although an entity may use the cost model for one investment property, the entity shall continue to account for each of the remaining properties using the fair value model [ Refer: paragraphs 33–55] .
If an entity has previously measured an investment property at fair value , it shall continue to measure the property at fair value until disposal (or until the property becomes owner‑occupied property or the entity begins to develop the property for subsequent sale in the ordinary course of business [ Refer: paragraph 9(a)] ) even if comparable market transactions become less frequent or market prices become less readily available.