9 Best basic investment or owner-occupied property

Cost model

Fair value model

After initial recognition, an entity that chooses the cost model shall measure all of its investment properties in accordance with IAS 16’s requirements for that model, other than those that meet the criteria to be classified as held for sale (or are included in a disposal group that is classified as held for sale) in accordance with IFRS 5. Investment properties that meet the criteria to be classified as held for sale (or are included in a disposal group that is classified as held for sale) shall be measured in accordance with IFRS 5

After initial recognition, an entity that chooses the fair value model shall measure all of its investment property at fair value,

When a property interest held by a lessee under an operating lease is classified as an investment property is not elective; the fair value model shall be applied.

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.

Requirements relating to the inability to measure fair value reliably

For a transfer from investment property carried at fair value to owner-occupied property or inventories:

• the property’s deemed cost for subsequent accounting in accordance with IAS 16 Property, plant and equipment or IAS 2 Inventories shall be its fair value at the date of change in use. If an owner-occupied property becomes an investment property that will be carried at fair value, an entity shall apply IAS 16 Property, plant and equipment up to the date of change in use.
• the entity shall treat any difference at that date between the carrying amount of the property in accordance with IAS 16 Property, plant and equipment and its fair value in the same way as a revaluation in accordance with IAS 16 Property, plant and equipment.

For a transfer from inventories to investment property:

• that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss.

When an entity completes the construction or development of a self-constructed investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss.

In the Notes to the financial statement:

An entity that applies either the cost model or the fair value model shall disclose:

1. whether it applies the fair value model or the cost model;
2. when classification is difficult, the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business;
3. the existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal; and
4. contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.

In Profit or loss :

1. rental income from investment property;
2. direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period;
3. direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period; and
4. the cumulative change in fair value recognised in profit or loss on a sale of investment property from a pool of assets in which the cost model is used into a pool in which the fair value model is used.

In the Notes to the financial statement:

An entity that applies the cost model shall disclose:

1. the depreciation methods used;
2. the useful lives or the depreciation rates used;
3. the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;
4. a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing the following:
   1. additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognised as an asset;
   2. additions resulting from acquisitions through business combinations;
   3. assets classified as held for sale or included in a disposal group classified as held for sale and other disposals;
   4. depreciation;
   5. the amount of impairment losses recognised, and the amount of impairment losses reversed, during the period;
   6. the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity;
   7. transfers to and from inventories and owner-occupied property; and
   8. other changes.
5. the fair value of investment property. In the exceptional cases, when an entity cannot measure the fair value of the investment property reliably, it shall disclose:
   1. a description of the investment property;
   2. an explanation of why fair value cannot be measured reliably; and
   3. If possible, the range of estimates within which fair value is highly likely to lie.

In the Notes to the financial statement:

An entity that applies the fair value model shall disclose:

1. a reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing the following:
   1. additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognised in the carrying amount of an asset;
   2. additions resulting from acquisitions through business combinations;
   3. assets classified as held for sale or included in a disposal group classified as held for sale and other disposals;
   4. net gains or losses from fair value adjustments;
   5. the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity;
   6. transfers to and from inventories and owner-occupied property; and
   7. other changes.
2. when a valuation obtained for investment property is adjusted significantly for the purpose of the financial statements, for example to avoid double-counting of assets or liabilities that are recognised as separate assets and liabilities, the entity shall disclose a reconciliation between the valuation obtained and the adjusted valuation included in the financial statements, showing separately the aggregate amount of any recognised lease liabilities that have been added back, and any other significant adjustments.
3. the extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on 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. If there has been no such valuation, that fact shall be disclosed.