IAS 40 provides guidance on accounting for investment property. Investment property is defined as property held to earn rentals or for capital appreciation. Investment property can initially be measured using either the cost model or fair value model. Under the cost model, investment property is carried at cost less accumulated depreciation and impairment losses. Under the fair value model, investment property is remeasured at fair value at each reporting date with changes in fair value recognized in profit or loss. The standard also provides guidance on recognition, measurement, transfers and disposal of investment property.

1. SUBMITTED BY MUHAMMAD IRFAN AHMED
SUBMITTED T0 SIR TOUSEEF AALAM
IAS 40 — Investment Property

2. OVERVIEW
IAS 40 Investment Property applies to the accounting for property (land and/or
buildings) held to earn rentals or for capital appreciation (or both). Investment
properties are initially measured at cost and, with some exceptions. may be
subsequently measured using a cost model or fair value model, with changes in the fair
value under the fair value model being recognized in profit or loss.

3. DEFINITION OF INVESTMENT PROPERTY
Investment property is property (land or a building or part of a building or both)
held (by the owner or by the lessee under a finance lease) to earn rentals or for
capital appreciation or both.

4. EXAMPLES OF INVESTMENT PROPERTY
 land held for long-term capital appreciation
 land held for a currently undetermined future use
 building leased out under an operating lease
 vacant building held to be leased out under an operating lease
 property that is being constructed or developed for future use as investment property

5. THE FOLLOWING ARE NOT INVESTMENT
PROPERTY AND, THEREFORE, ARE OUTSIDE
THE SCOPE OF IAS 40:
 property held for use in the production or supply of goods or services or for
administrative purposes
 property held for sale in the ordinary course of business or in the process of
construction of development for such sale (IAS 2 Inventories)
 property being constructed or developed on behalf of third parties (IAS 11 Construction
Contracts)
 owner-occupied property (IAS 16 Property, Plant and Equipment), including property
held for future use as owner-occupied property, property held for future development
and subsequent use as owner-occupied property, property occupied by employees and
owner-occupied property awaiting disposal
 property leased to another entity under a finance lease

6. RECOGNITION
Investment property should be recognized as an asset when it is probable that
the future economic benefits that are associated with the property will flow to
the entity, and the cost of the property can be reliably measured.

7. INITIAL MEASUREMENT
Investment property is initially measured at cost, including transaction costs. Such
cost should not include startup costs, abnormal waste, or initial operating losses
incurred before the investment property achieves the planned level of occupancy.

8. MEASUREMENT SUBSEQUENT TO INITIAL
RECOGNITION
IAS 40 permits entities to choose between:
 a fair value model, and
 a cost model.
One method must be adopted for all of an entity's investment property. Change
is permitted only if this results in a more appropriate presentation. IAS 40 notes
that this is highly unlikely for a change from a fair value model to a cost model

9. FAIR VALUE MODEL
Investment property is re-measured at fair value, which is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Gains or losses arising from
changes in the fair value of investment property must be included in net profit or
loss for the period in which it arises.
Fair value should reflect the actual market state and circumstances as of the balance
sheet date.
Where a property has previously been measured at fair value, it should continue to
be measured at fair value until disposal, even if comparable market transactions
become less frequent or market prices become less readily available

10. COST MODEL
After initial recognition, investment property is accounted for in accordance
with the cost model as set out in IAS 16 Property, Plant and Equipment – cost
less accumulated depreciation and less accumulated impairment losses

11. TRANSFERS TO OR FROM INVESTMENT
PROPERTY CLASSIFICATION

12. DISPOSAL
An investment property should be derecognized on disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from its disposal. The gain or loss on disposal should be calculated as the
difference between the net disposal proceeds and the carrying amount of the asset
and should be recognized as income or expense in the income statement.
Compensation from third parties is recognized when it becomes receivable