This document provides definitions and guidance on accounting for investment property according to IAS 40. It defines investment property as property held to earn rentals or for capital appreciation rather than for use in production. Investment property is initially measured at cost and subsequently measured either using the cost model or fair value model. Under the fair value model, changes in fair value are recognized in profit or loss. The document outlines criteria for investment property recognition, measurement, transfers between models, impairment, and disposal.

1. INVESTMENT
PROPERTY (IAS 40)

2. DEFINITION OF INVESTMENT PROPERTY
Not held for
 use in production, supply of
goods/ services or for
administration
 Sale in ordinary course of
business
Property (Land and Building
or Both) held
 To earn rentals or
 For capital appreciation
Property held by a lessee under an operating lease otherwise
meets the definition of investment property
 Lessee must use fair value model
 Property-by-property basis
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3. “
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Examples of Investment Property
✘Land held for long-term capital appreciation
✘Land held currently for undetermined future use
✘Property under development or construction to be held to earn
rentals or for capital appreciation
✘ Investment property being redeveloped
o For continued use as investment property
✘ Building owned (or held under finance lease) leased out under
operating leases
o Including vacant building that will be leased out under
operating lease

4. NOT CLASSIFIED AS
INVESTMENT PROPERTY
✘ For sale in the ordinary course of business (Inventories)
✘ Constructed for third party - Construction in Progress
(Inventories)
✘ Owner-occupied (Property, Plant and Equipment)
✘ Employee-occupied (Property, Plant and Equipment)
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5. 1. PROPERTY WITH DUAL PURPOSE
• If enterprise is able to split, the portion held as owner-occupied is classified under
Property, Plant and Equipment; and the portion held for rental to others is
classified under Investment Property.
• If enterprise is not able to split but the significant portion is held for rental to
others, the asset is classified as investment property, otherwise, it is classified as
Property, Plant and Equipment.

6. 6
ENTITY PROVIDES
ANCILLARY SERVICES TO
LESSEE
 Significant – Owner Occupied Property (PPE)
 Insignificant – Investment Property

7. 7
Property Leased to an Affiliate
If lessor prepares Separate Financial Statements then
classify the asset as an Investment Property.
 So far as the consolidated Financial Statement is concern
the property is classified as owner occupied property
(PPE).

8. Recognition Criteria
✘ Investment property should be recognized as
an asset when
o it is probable that future economic benefits associated
with the investment-property will flow to the enterprise,
and
o the cost of the investment property can be measured
reliably
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9. Initial Measurement
✘ Initially, measured at cost which include transaction costs
✘ Exclude start-up cost unless necessary to bring to working condition
✘ Exclude initial operating losses and abnormal waste
✘ For property held under finance lease, cost is according to IAS 17,
par.20.
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10. Fair value model
✘ Disposal costs are not
deducted
✘ Change in fair value is
reported in profit or loss
✘ Exemption, if fair value
cannot be reliably
determined on a continuing
basis
SUBSEQUENT MEASUREMENT
Cost model
✘ As per IAS 16
✘ Subject to depreciation
✘ Impairment losses
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The choice of the measurement model applies to all investment property

11. BASES FOR FAIR VALUE
DETERMINATION
Current prices in an
active market (best
evidence)
Current prices in an
active market for
properties of different
nature, conditions or
location, adjusted for
such differences
Recent prices of
similar properties
on less active
markets
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Discounted cash flow projections, using discount rates that
reflect current market assessments

12. RECLASSIFICATIONS
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Shall be made when
there is a change in use,
evidenced by
• Commencement of
owner-occupation
• Commencement of
development with a
view to sale
• End of owner-
occupation
• Commencement of
an operating lease

13. 13
TRANSFERS USING
THE COST MODEL
TRANSFERS - FAIR
VALUE MODEL
• From investment
property to inventories
• From inventories to
investment property
Transfers do not change
the carrying amount of the
property transferred and
they do not change the cost
of that property for
measurement and
disclosure purposes.
Difference between the
previous carrying amount
and the fair value at the
date of transfer shall be
taken to profit or loss.

14. 14
Cost Model
PPE to Inv Prop= cost to cost
Fair value model:
PPE using revaluation model to Inv. Prop = CA-FV = OCI
(FV>CA= Revaluation surplus= OCI)
(FV<CA= Revaluation loss =P/L)
PPE using cost model to Inv. Prop = CA-FV = P/L

15. 15
If owner-occupied property is transferred to investment property
that is to be carried at fair value, any revaluation is taken to equity
as revaluation surplus.
Investment property measured at fair value is reclassified property,
plant and equipment; the transfer shall be recorded at fair value, which
shall be the cost initially assigned to property, plant and equipment.

16. RETIREMENTS AND
DISPOSALS
✘ Eliminate items of investment
property
 on disposal, or
 when permanently withdrawn from
use and no future economic benefits
expected through disposal
✘ Difference between carrying
amount and net disposal
proceed recognized as
income or expense
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17. 17

18. 18

19. 19
1.Cost of Investment Property 50,000,000
Less: RV 5,000 000
Depreciable Amount 45,000,000
EUL 25 years
Annual Depreciation 1,800,000
2. Asset Cost 1/1/19 50,000,000
FV 12/31/19 55,000,000
FV 12/31/20 53,000,000
FV 12/31/21 60,000,000
> 5,000,000 gain for 2019
> 2,000,000 loss for 2020
> 7,000,000 gain for 2021

20. 20

21. 21
1. Cost of Inv.Prop. 4,000,000
Less: RV -
Depreciable Amount 4,000,000
EUL 40 years
Annual Depreciation 100,000
5 years
Accum. Depreciation 500,000
Cost of Inv. Prop 4,000,000
AD 500,000
CA 12/31/21 3,500,000
2. Selling Price 3,800,000
CA 12/31/21 3,500,000
Gain on Sale 300,000

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23. 23
1. Property M (25M/20) 125,000
Property N (4M/20) 200,000
Property L (3.7M/20) 185,000
Total Annual Depreciation 510,000
Cost FV 12/31/20 FV 12/31/21
Property M P2,500,000 P2,700,000 P2,400,000
200,000 gain 300,000 loss
Property N 4,000,000 3,800,000 4,200,000
200,000 loss 400,000 gain
Property L 3,700,000 3,600,000 3,850,000
100,000 loss 250,000 gain
100,000 loss
for 2020
350,000 gain
for 2021

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25. 25

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REVALUATION- it is where you carried your assets at its FV
FV-CA= Revaluation Surplus
 Proportionate: Carried the assets to FV which is the replacement cost
Asset @replacement cost xx
AD- additional AD xx
Revaluation Surplus xx
Before: Asset- AD= CA
After: Asset @ replacement cost – AD = CA
 Elimination: Eliminate AD then carried the asset at Depreciable Replacement
Cost
Asset (Dep.rep.cost- cost) xx
AD (OLD) xx
Revaluation Surplus xx

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Impairment of Revalued Amount
Revalued Amount – Recoverable Amount = Impairment Loss
CA w/ impairment- CA w/out impairment = Gain/Loss on Reversal
RECOVERY OF IMPAIRMENT LOSS:
 Revaluation INCREASE (FV>CA)
- If not previously impaired the change will go to OCI
- If previously impaired the change will be 1st charge to P/L up to the extent of recorded
impairment loss then the excess will go to OCI
 Revaluation DECREASE (FV<CA)
- If not previously revalued it will be charged as expense in P/L
- If previously revalued it will be charged as expense in OCI up to the extent of any
credit balance existing in the revaluation surplus in respect to that asset, then the
excess will go to P/L and charged as revaluation loss.

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Changes due to change in FV – OCI
Changes due to Realization – Retained Earnings/ Equity
REALIZATION:
- If silent may be transfer to R.E (Dr. RS, Cr. RE), or
- Left in equity under heading Revaluation Surplus
NON DEPRECIABLE- thru disposal
DEPRECIABLE – thru depreciation and disposal

29. 29
Illustrative Problems:
1. Jay Company reported an impairment loss of P500,000 in its income statement for
the year 2022. This loss was related to an item of property, plant and equipment
which was acquired on January 1, 2014 with cost of P4,000,000 (no residual value).
Depreciation on the building is computed on a straight line basis and annual
depreciation on cost is P160,000. Depreciation for the year 2023 was computed
based on the asset’s recoverable amount at December 31,2022.
On December 31, 2025, the entity decided to measure its building using revaluation
model. The building was then appraised at a fair value of P3,240,000.
a. What amount of gain on impairment recovery should Jay report in 2025 income
statement?
b. How much is the revaluation surplus, if any, recognized at December 31, 2025.

30. 30
COST P4,000,000
Accu.Dep
(160K x 9 yrs) 1,440,000
CA w/out impairment 2,560,000
Recoverable Amount 2,060,000
Impairment Loss 500,000
Recoverable Amount P2,060,000
Accu.Dep.
(2,060,000/16 x3) 386,250
Revalued Amount 1,673,250
Fair Value 3,240,000
Impairment Recovery 1,566,250
Profit/Loss 500,000
Revaluation Surplus 1,066,250

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Thanks!
Any questions?