Accounting For Investment Property

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An investment property is property (land or a building, part of a building or both) held to earn rentals or for capital appreciation or both.

Accounting treatment The recognition criteria for investment property are the same as for property, plant and equipment under IAS 16. An investment property should be recognised as an asset only when:

 it is probable that future economic benefits associated with the property will flow to the entity; and

 the cost of the property can be measured reliably. Measurement at recognition Investment property should be measured initially at cost plus the transaction costs incurred to acquire the property.

A property held under a lease may be classified as an investment property.

The initial cost of such a property is found by capitalising the lease in accordance with IFRS 16: Leases.

Measurement after recognition After initial recognition an entity may choose as its accounting policy:

 the fair value model; or

 the cost model. The chosen policy must be applied to all the investment property of the entity.

Once a policy has been chosen it cannot be changed unless the change will result in a more appropriate presentation. IAS 40 states that a change from the fair value model to the cost model is unlikely to result in a more appropriate presentation.

 

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Recognition guidance for intangibles purchased separately The probability recognition criterion is always satisfied for separately acquired intangible assets.

Also the cost of a separately acquired intangible asset can usually be measured reliably especially when the purchase consideration is in the form of cash or other monetary assets.

Recognition guidance for intangibles acquired in exchange transactions An intangible asset may be acquired in exchange or part exchange for another intangible asset or another asset.

The cost of such items is measured at fair value unless:  the exchange transaction lacks commercial substance; or,

 the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value it is measured at the carrying amount of the asset given up.

 

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Recognition guidance forinternally-generated intangible assets IAS 38 prohibits the recognition of the following internally-generated intangible items:

 goodwill;

 brands;

 mastheads (Note: a masthead is a recognisable title, usually in a distinctive typographical form, appearing at the top of an item.

An example is a newspaper masthead on the front page of a daily newspaper);

 publishing titles; and  customer lists.

Other internally generated intangibles Assessment of whether an internally generated intangible asset meets the criteria for recognition requires a company to classify the generation of the asset into:  a research phase; and  a development phase.