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IAS 40 - Investment Properties

Summary of the standards and interpretations on international accounting (IAS, IFRS, SIC, IFRIC) - as of May 2013

Objectives and scope of IAS 40

The regulations of IAS 40 cover the accounting and valuation of investment property. Exempt from the regulations of IAS 40 are biological assets, as well as mining and prospecting rights and mineral resources.

Important definitions of IAS 40

Real estate held as financial investments within the meaning of IAS 40.5 is defined as real estate by means of which the owner or lessee intends to generate income from rental income or from increases in value in the case of a finance lease.

Real estate occupied by the owner for the production of products and goods, the provision of services or for administrative purposes, or real estate sold in the ordinary course of business of the company, do not fall under this definition.

Accounting and valuation according to IAS 40

Investment property is recognized as an asset in accordance with IAS 40.16 if it is probable that the future economic benefits associated with the investment property will accrue and the acquisition and production costs of the property in question can be reliably measured.

According to IAS 40.20, real estate held as a financial investment is to be valued at its acquisition and production costs when it is first recognized. Any transaction costs must also be included. In accordance with IAS 40.25, leased properties are valued at the lower of the fair value of the property or the present value of the corresponding minimum lease payments.

In accordance with IAS 40.30, the company can use either the acquisition cost model or the fair value model for the subsequent valuation of the investment property. In accordance with IAS 40.34, however, the fair value model must be used for investment properties from operate leases.

If the acquisition cost model is used, the corresponding properties are to be valued on the basis of the valuation rules of IAS 16. Real estate held as a financial investment must also be accounted for and valued in accordance with the regulations of IFRS 5 if they are classified as held for sale or as discontinued operations within the meaning of IFRS 5.

The profit or loss from the changes in the fair value is to be recognized in profit or loss in accordance with IAS 40.35. However, if a company has the temporary or ongoing problem of reliably determining the fair value of its investment properties, the cost model in accordance with IAS 16 is to be applied in accordance with IAS 40.53 for the assets in question.

A transfer of investment properties to the owner's owner-occupied property or to inventories in accordance with the regulations of IAS 40.57 (start or end of owner-occupation, start of an operating lease with another party) is possible. The valuation basis at the time of transfer is the respective fair value of the property (IAS 40.60 / IAS 40.61).

Information in accordance with IAS 40

In its financial statements, a company must state, among other things, whether it uses the fair value model or the cost model. In addition, information is to be provided about difficulties in differentiating between investment properties and properties used by the owner, amounts recognized in profit or loss from and for the investment properties of a company or information about contractual obligations to sell investment properties.

When using the fair value model, a reconciliation calculation must be drawn up for the development of the portfolio of investment properties over the course of the year. In addition, additional information on the investment properties must be provided (e.g. description of the properties, information on estimation ranges, information on disposals).

If the company uses the acquisition cost model, it has to present information on the fair values ​​of its investment properties in addition to a reconciliation for the development of the investment properties over the course of the year.

If you have any questions about IAS 40 or other IAS, IFRS, SIC or IFRIC, please contact the IFRS experts at FAS AG at 0711 / 6200749-0 or info (at) fas.ag.