Transfer of investment property in Business

[Yakub02]

An entity shall transfer a property to, or from, investment property when, and only when, there is a change in use.

A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use.

Examples of evidence of a change in use include:

(a) Commencement of owner-occupation, or of development with a view to owner occupation, for a transfer from investment property to owner-occupied property;

(b) Commencement of development with a view to sale, for a transfer from investment property to inventories;

(c) End of owner-occupation, for a transfer from owner-occupied property to investment property; and

(d) Inception of an operating lease to another party, for a transfer from inventories to investment property

Accounting treatment Under the fair value model, the entity should:

(a) Revalue all its investment property to ‘fair value’ at the end of each financial year; and

(b) Recognise any resulting gain/loss in profit or loss for the period.

(c) The property would not be depreciated.

Cost model for investment property The cost model follows the provisions of IAS 16. The property is measured at cost less accumulated depreciation and less impairment loss if any

 

[Yakub02]

The basic accounting policy choice will affect the recognition of profits and losses, and could introduce extreme volatility to the statement of profit or loss.

Application of this standard requires different judgements and estimates to be made which would have an impact on figures reported in the financial statements. These include the following:
 Identification of investment property;

 Issues arise in respect of the assets that “come with” the property (consider a vineyard);

 Choosing the appropriate accounting policy;

 It is ‘highly unlikely’ that a change from fair value to the cost model would provide a more appropriate presentation; and  Obtaining reliable measures of fair value.

 

[Yakub02]

Intangible asset: An identifiable, non-monetary asset without physical substance’

An asset: A resource controlled by the company as a result of past events and from which future economic benefits are expected to flow. Chapter 9: Non-current assets and non-financial liabilities 3 IAS 38:

INTANGIBLE ASSETS 3.1 Introduction Recognition and initial measurement An intangible asset must be measure at cost when first recognised.

An intangible asset is recognised when it:  complies with the definition of an intangible asset; and,  meets the recognition criteria set out in the standard. An intangible asset must be recognised if (and only if):

 it is probable that future economic benefits specifically attributable to the asset will flow to the company;  the cost of the asset can be measured reliably;  If it can be identified separately; and  If organization currently control the Intangible Non-Current Assets.

 

[Yakub02]

Subsequent expenditure is only capitalised if it can be measured and attributed to an asset and enhances the value of the asset.

This would rarely be the case: Means of acquiring intangible assets A company might obtain control over an intangible resource in a number of ways. Intangible assets might be:

 purchased separately;  acquired in exchange for another asset;

 given to a company by way of a government grant.

 internally generated; or  acquired in a business combination.

IAS 38 provides extra guidance on how the recognition criteria are to be applied and/or how the asset is to be measured in each circumstance.