Introduction and the Framework


After initial recognition, an entity has a choice of methods to account for investment property



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After initial recognition, an entity has a choice of methods to account for investment property:

  • After initial recognition, an entity has a choice of methods to account for investment property:
  • Fair value model (FVM), or
  • Cost model (CM)
  • Must apply one model to all of its investment property

Fair value model (FVM):

  • IAS 40 – Measurement after Recognition
  • Fair value model (FVM):
  • Assets are measured at fair value
  • Changes in fair value are recognized in profit or loss in period of change
  • No depreciation is recorded
  • Fair values continue to be used even if difficult to measure reliably

Fair value:

  • IAS 40 – Measurement after Recognition
  • Fair value:
  • Price at which property could be exchanged between knowledgeable, willing parties in an arm’s length transaction, without any special concessions or deductions for transaction costs
  • Best evidence is current prices in an active market for similar property in the same location and condition
  • If not available, other methods can be used to determine

FVM example:

  • IAS 40 – Measurement after Recognition
  • FVM example:
  • Investment property is acquired August 11, 2008, at a cost of $200.
  • Fair values:
  • December 31, 2008 - $190
  • December 31, 2009 - $198
  • December 31, 2010 - $205

FVM example:

  • IAS 40 – Measurement after Recognition
  • FVM example:
  • Dec.31/08 Loss in value $10
  • Investment property $10
  • Dec.31/09 Investment property $ 8
  • Gain in value $ 8
  • Dec.31/10 Investment property $ 7
  • Gain in value $ 7

Cost model (CM)

  • IAS 40 – Measurement after Recognition
  • Cost model (CM)
  • - Applies cost model described in IAS 16
  • Assets reported at cost less accumulated depreciation and accumulated impairment losses
  • Depreciation expense recognized each period

Do companies use the FVM or the CM?

  • IAS 40 – Measurement after Recognition
  • Do companies use the FVM or the CM?
  • KPMG: The Application of IFRS: Choices in Practice – International Financial Reporting Standards, December 2006
  • http://www.kpmg.co.uk/pubs/304574_ifrg.pdf
  • See pages 18 and 19 of 44

Derecognize investment property

  • IAS 40 - Derecognition
  • Derecognize investment property
  • On disposal – when sold or transferred under a finance lease, or
  • On retirement – when permanently removed from use and no benefits are expected from its disposal
  • Gains and losses on disposal generally recognized in profit or loss

General disclosures:

  • General disclosures:
  • whether the FVM or the CM is applied
  • if FVM, whether and when any operating leases are classified as investment property
  • criteria used to distinguish between owner-occupied investment property and property held for sale where judgment is needed
  • methods and assumptions underlying fair value measurements, including extent to which market-related evidence is used
  • extent to which the fair values were determined by an experienced, professional, and independent appraiser
  • existence of restrictions and contractual obligations related to the properties
  • amounts and specific types of income and expense recognized in profit or loss
  • IAS 40 - Disclosures
  • Current GAAP Comparisons
  • Page 62 of 164 of
  • http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf

Sponda Plc

  • IFRS Financial Statement Disclosures
  • Sponda Plc
  • Annual Report 2007:
  • Balance sheet Page 58 of 112
  • Income statement Page 57 of 112
  • Accounting policies Page 65 of 112
  • Investment properties
  • note page 77 of 112
  • http://www.sponda.fi/www/In_english/Investors/Annual_reports.iw3

No significant investment property issues on the IASB agenda.

  • Looking Ahead
  • No significant investment property issues on the IASB agenda.
  • Longer-term changes expected in IAS 17 Leases may affect IAS 40
  • End-of-Chapter Practice
  • End-of-Chapter Practice
  • End-of-Chapter Practice
  • Copyright © 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030-5774, (201) 748-6011, fax (201) 748-6008, website http://www.wiley.com/go/permissions. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.
  • Exploration for and Evaluation of Mineral Resources: IFRS 6


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