An Executive Guide to IFRS: Content, Costs and Benefits to Business

Investment property

The treatment of investment property is one of the obvious differences between IFRS and US GAAP. IAS 40 Investment Property allows companies a choice as to whether they account for an investment property at cost or at fair value. The fair value option allows companies to reflect gains and losses on the market value of their investments in the income statement, broadly in line with what is done for investments in equity.

The standard defines an investment property as:

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, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes; or

(b) sale in the ordinary course of business.

If a property is held partly as an investment property and partly for own use, the two parts are treated differently, provided that they could be sold separately. If they cannot be sold separately, then the property is accounted for under IAS 16, except where the own use part is insignificant.

At initial recognition, the property is measured at cost but thereafter the entity must opt for the historical cost model (IAS 16) or fair value. Property held under an operating lease but treated as an investment property must be measured at fair value. The same policy must be applied to all investment properties held by the entity. The standard also says that the fair value measurement must ...