IAS 

40 – Investment properties

Investment Properties – IAS 40

Checklist

2
Scope

Agriculture

IAS 41

IAS 40
does not
apply to

IAS 16 Properties, Plants and

Equipment
Mineral rights and mineral
reserves such as oil, natural
gas…

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IAS 40 – Investment properties

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Contents

Definition

identification

Recognition and Measurement

Presentation and Disclosure

4
Definition

Investment property: Property (land/building/part of a building)

held (by the owner or by the lessee under a finance lease) to earn
rental income or for capital appreciation purpose or both, rather than
for:
• Use in the production or supply of goods or services or for administrative
purposes
• Sale in the ordinary course of business
Owner‐occupied 
property
Inventories (IAS 16)
(IAS 2)

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IAS 40 – Investment properties

Land held for long-term capital appreciation

Identification
Land held for currently undetermined future use

A building owned by the reporting entity (or held

by the reporting entity under a financial lease) and
leased out under one or more operating leases

A vacant building held by an entity to be

leased out under one or more operating leases

Property under construction or being developed

for future use as investment property

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Identification
Property employed in the business

Owner-occupied property

Property being constructed on behalf of third parties

Property held for sale in the ordinary course of business or in the

process of production/development for such sale

Property that is leased to another entity under a finance lease

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IAS 40 – Investment properties

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Identification. Joint-use properties
Properties used for a variety of purpose: a portion is used to earn rental income, a portion
is used in the production or supply of goods or services or administrative purposes.

Can each portion be sold or leased out separately?

Insignificant?
Professional 
judgement

Yes No

Entire property is classified as Property, Plants and

Equipment;
Each portion is classified
separately
Unless the owner-occupied portion is insignificant =>
Entire property is classified as Investment property

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Identification. Ancillary services
Entity may provide ancillary services to the occupants of its property: maintenance of the
building, security

Ancillary services are insignificant or incidental?

Yes No

Property is classified as Property,

Property is classified as
Plants and Equipment
Investment property
(used for supply of services)

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IAS 40 – Investment properties

Entity X built a residential property with the

intention of selling it. In the past, X has
regularly developed property and sold it
immediately after completion. To increase the
chances of a sale, X chooses to let some of the
flats as soon as they are ready for occupation.
The tenants move into the property before
completion.

=> X should classify this property as……………….

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Recognition & Measurement

Investment Property costs is recognized as an Asset: When

 It becomes probable that the entity will enjoy the future economic
benefits which are attributable to it
 Costs of investment can be reliably measured

If the owner’s likelihood of receipt of economic benefits is less than

probable, costs incurred are recognized as expenses.

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IAS 40 – Investment properties

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Recognition & Measurement

Measurement: Amount?

Initially

Cost

Subsequently

Entity may choose

Cost Fair value

model model

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Initial measurement. Cost of investment property

Cost = Purchase cost + directly attributable

expenditure (i.e. legal fees, property
transfer taxes & other transaction costs)

Cost of investment property does not include:

 Startup cost (unless they are essential in bringing the
property to its working condition);

 Initial operating losses incurred before the investment

property achieves the planned level of occupancy;

 Abnormal amounts of wasted materials, labor or other

resources incurred in constructing or developing the
property.

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IAS 40 – Investment properties

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An entity purchased land for the purpose of long-term

capital appreciation. Following expenditures related to
the acquisition:
 Purchase price: $600,000

 Broker’s commission: $30,000

 Cost of grading the land: $5,000

 Property transfer tax: $4,000

 Property tax paid for the current financial year
after the purchase date: $ 2,000

What is the cost of the land?

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Subsequent measurement
Subsequent expenditures may be added to carrying amount of the investment
property if they meet recognition criteria, i.e., innovation costs.

Entity may choose to measure investment property at either:(*)

 Fair value (fair value model), or
 Depreciated cost less accumulated impairment (Cost model)

Cost model can be change to fair value model if new policy results in more
reliable and relevant information. However, if the fair value model is chosen, it is
almost impossible to subsequently change to the cost model.(**)

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IAS 40 – Investment properties

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Subsequent measurement. Fair value model

Each Carrying amount Re‐measured FAIR VALUE

subsequent
financial
reporting
The difference:
date Reported in the Profit or Loss

Debit Profit or Loss Loss from fair Debit Investment property Gain from fair
Credit Investment property value change Credit Profit or Loss value change

When choosing fair value model, all investment properties must be measured at fair
value, except for those whose fair value cannot be reliably measured

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Subsequent measurement. Fair value model
Rare 
Entity acquired investment property for the circumstances
first time

Market for comparable Alternative reliable measurement of fair

properties is inactive value is not available

fair value cannot be reliably measured

Using cost model

residual value =0

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IAS 40 – Investment properties

Example
• ABC Ltd. applies IFRS and applied the fair value model for its 
investment properties. The company has acquired a property for 
$2million, then it spent a further $7million on renovations to be let as 
an investment property.
• At the year end, its fair value is determined to be $10million
• Accounting treatment for this property at acquisition & at the year 
end?

17

Subsequent measurement
Cost model
• Carrying amount = Cost – Accumulated Depreciation –
Accumulated Impairment Losses
IAS 16
Property, Plant 
&Equipment

Except for
• Held‐for‐sale assets (apply IFRS 5 – Non current assets held for sale and 
Discontinued Operations)
• Right‐of‐use assets held by a lessee & is not held for sale (apply IFRS 16)

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IAS 40 – Investment properties

Example
• ABC Ltd. applies IFRS and applied the fair value model for its 
investment properties. The company has acquired a property for 
$2million, then it spent a further $7million on renovations to be let as 
an investment property.
• At the year end, its fair value is determined to be $10million
• Accounting treatment for this property at acquisition & at the year 
end?

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Subsequent measurement. Cost model
Carrying amount = Cost – Accumulated Depreciation – Accumulated
Impairment Losses

IAS 16
Property, Plant & 
Equipment

Except for
• Held-for-sale assets (apply IFRS 5 – Non current assets held for sale and
Discontinued Operations)
• Right-of-use assets held by a lessee & is not held for sale (apply IFRS 16)

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IAS 40 – Investment properties

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Example
•Can a company opt for the fair value model for an investment
property under construction, while all other completed
investment properties are valued using the cost model?
•No

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Transfers

Transfer to or from investment property is made only when

there is a “change in uses”

Change in management’s 
intention for the use of a 
property is not an evidence of 
change in use

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IAS 40 – Investment properties

Transfers
(2) => (1) When owner
occupation ends

(2) Owner occupied 
(1) Investment property Transfer to/from
property

(3)=> (1) When operating lease (1) => (2) When owner
to a third parties commences occupation commences

(3) Inventories

(1) => (3) On commencement of development

with a view to sale 23

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Transfer. Determining carrying value

Under cost model: Under fair value

transfers do not model: carrying
change the amount is adjusted
carrying amount of to its fair value at
property. the date of change

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IAS 40 – Investment properties

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Transfer. Under fair value model
Owner-occupied property => investment property (fair value model)

Carrying amount Fair value

(Apply IAS 16 until Adjust to (at the date of
the date of change) change )

Difference at the date of change: treated in a same way as a revaluation
under IAS 16
 Fair value < Carrying amount: Decrease is recognized in the Profit or Loss. However, to the extent that amount is
included in revaluation surplus, decrease is recognized in Other comprehensive Income & reduce revaluation
surplus within equity.
 Fair value > Carrying amount: to the extent that the increase reverses previous impairment loss, increase is
recognized in the Profit or Loss. The remaining part of increase is recognized in Other comprehensive Income

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Transfer. Under fair value model

Inventories => Investment property (fair value model)

Carrying amount Fair value 
Adjust to
(Apply IAS 02) (at the date of change)

Differences: recognized in the Profit or Loss

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IAS 40 – Investment properties

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Disposal
Disposal: sale, or enter into a financial lease

Net disposal  Carrying 
Gains / Losses
proceeds amount of asset

recognized in the Profit 
or Loss

To determine the date of sale: apply IFRS 15

When entering into a financial lease & sale and lease back: apply IFRS 16

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01 Where it applied the fair value model or cost model

Disclosures 02
When classification is difficult, entity should disclosure the 

applicable to
criteria used to identify investment property

all investment 03
The methods and significant assumptions that were used 
in ascertaining the fair values of investment properties.

properties The extent to which fair value of investment property is based on a 
valuation by an independent valuer who holds a recognized and 
04 relevant professional qualification and has recent experience in the 
location and category of IP being valued. If there has been no such 
valuation, that fact should be disclosed.

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IAS 40 – Investment properties

Disclosures
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 The amount of rental income derived from investment

property.

 Direct operating expenses arising from investment

property that generate and did not generate rental
income during the period.
Disclosure in the 
 Cumulative change in fair value recognized in profit or Statement of 
loss on sale of investment property from a pool of
assets in which the cost model is used into a pool in comprehensive 
which the fair value model is used. income
 The existence and the amount of any restrictions
which may potentially affect the realisability of
investment property or the remittance of income and
proceeds from disposal to be received

 Material contractual obligations to purchase or build

investment property or to make repair, maintenance …

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Disclosrures – IP using fair

Reconciliation of the carrying amount of investment property at the

beginning and end of period.
value model

Reconciliation between the valuation obtained and the adjusted valuation

included in the financial statement (if there is significant adjustment for the
purpose of financial statement)

When entity using cost to measure investment property (due to lack of

reliable fair value), above reconciliation should disclose:
 Amounts for that investment property separately from others
 Description of that investment property, the reason why fair value
cannot be measured reliably
 On disposal of such investment property, the fact that entity has
disposed of investment property not carried at fair value, its carrying
amount at the time of disposal and gain/losses.

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IAS 40 – Investment properties

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Disclosure. IP using cost model

Fair value of investment property The depreciation methods, useful

carried under the cost model. lives or the depreciation rates
used used.
04
01

03
02
The gross carrying amount and Reconciliation of the carrying
accumulated depreciation at the amount of investment property at
beginning and the end of period. the beginning and end of period.

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IAS 40 – Investment properties

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IAS 40 – The end!

Address: Contact:
University of Economics, HCMC School of Accounting

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