IAS 40: Investment Property - mnp.ca

1 IAS40: Investment PropertyLast updated: January 2014 This communication contains a general overview of ias 40 : Investment Property . This summary is not comprehensive and should be considered only in conjunction with review and consideration of the requirements of the relevant International Financial ReportingStandards. This information is current as at January 2014 and should not be regarded as a substitute for professional advice. MNP LLP accepts no responsibility or liability for any loss or damage caused by your reliance on information contained in this contact your MNP representative for additional advice/guidance on a specific situation. MNP LLP 2014. All Rights and measure initially at cost if: Probable that future economic benefits associated with the item will flow to entit.

2 Guidance.) See IAS for guidance on derecognizing a replaced : Property intended for sale in ordinary course of business OR in the process of construction ordevelopment for such sale (acquired exclusively for subsequent disposal see IAS 2). Property being constructed or developed on behalf of third parties (see IAS 11). Owner-occupied Property (used in production/supply of goods/services/administrative purposes -see IAS 16), including Property : held for future use as owner-occupied Property , held for futuredevelopment and subsequent use as owner-occupied Property , occupied by employees (whetheror not the employees pay rent at market rates), and owner-occupied Property awaiting disposal. Property that is leased to another entity under a finance modelused transfers to/fromIP inventory OR owner occupied Property DOES NOT change carrying amount (CA) orcost of Property for measurement/disclosure model owner occupied Property OR inventory Commencement of owner-occupation/development for sale = FVat date of change in use (redevelopment for continued future use asIP change in use).

3 Cost Model:Carried at cost LESS accumulated depreciation &impairment in terms of IAS 16. Disclose MEASUREMENTTRANSFERS TO/FROM IP(ONLY WHENCHANGE IN USE)DISPOSALSD erecognizecarrying amount on disposal OR when permanently withdrawn from use andno future economic benefits expected from disposal - ALSO derecognize replacement parts. Apply IAS 18 criteria to determine disposal date if sale, or IAS 17 if finance lease/sale andlease =difference between net disposal proceeds and carrying amount. Recognized in P/L when derecognized (unless sale and leaseback see IAS 17). Consideration recognized at FV (may be cash equivalent with deferred interest income). Compensation from third parties forIP that was impaired/lost/given up recognized in P/L when either (apply to allIP):FV Model:Measure at FV with changes in FVrecognized in P/L.

4 See IAS for additional guidance on theFV model. Rebuttable presumption that FV can be reliably measured on continuing basis. If NOT( , market for comparable properties is inactive and alternative reliablemeasurements of FV not available) use cost model in IAS 16 (residual value assumed zero). If FV ofIP under construction NOT reliably measurable until complete measure at cost until earliest of: FV becoming reliably measurable or construction owner occupied Property IP@ FV End of owner-occupation. Apply IAS 16 up until date of change. Difference: CA and FV per IAS of self-constructedIP@ FV Difference: CA/ FV recognize in inventory IP@ FV Commencement of operatinglease to another party.

5 Difference: CA/FV recognize in and measure initially as an asset (at cost) if: Probable future economic benefits will flow to entity AND cost measured : Purchase price (cash price equivalent if deferred payment) plus directly attributablecosts ( , professional/legal fees, transfer taxes etc). Includes transaction costs. Excludes repairs and maintenance, start up costs, operating losses, abnormal wasteof material, labour, etc. Non monetary exchanges cost measured at FV UNLESS transaction has nocommercial substance/FV of assets received/given up not reliably measurable (seeIAS for more guidance). Initial cost of a Property interest held under a lease and classified as an investmentproperty account as finance lease [ , asset recognized at the lower of the FV and PV of the minimum lease payments with equivalent liability (see IAS 17)].

6 RECOGNITION AND INITIAL MEASUREMENT Biologicalassets(IAS 41). Mineralrights andreserves. Propertythat is interest held by lessee under an operating leaseMAY be classified & accounted for asIPif definition ofIPis met;it is accounted for as if it werea finance lease (see IAS 17);AND the lessee uses FV NOT APPLY TO:APPLIES TO: Investment Property (IP)=land or building/part of abuilding/or both held (by owner/lessee under financelease) to earn rentals for capital appreciation or both. Generates largely independent cash flows. Can account for parts of a building separately asIPorPPE if can be sold/leased separately. If not IPONLYif insignificant portion is owner occupied. Ancillary services ( , provision ofsecurity/maintenance to lessees) must beinsignificant in relation to arrangement as a whole.

7 Develop criteria to exercise consistent judgment ofwhether properties qualify asIP when classificationis difficult disclosure of criteria required. Examples: Land held for: long-term capital appreciation, ratherthan short-term sale in ordinary course of business; ORa currently undetermined future use. Building owned by entity (or held under finance lease)and leased out under one or more operating leases ORvacant but held to be leased out under one or moreoperating leases. Property being constructed or developed for future useasIP. Where Property of Sub A is leased to and occupied byits parent or another subsidiary of the parent the Property qualifies asIPin Sub A s individual F/S;however, DOES NOT qualify asIPin the consolidatedF/S.