PAS 40 – INVESTMENT PROPERTY
Handout Reviewer
📌 Definition of PAS 40
PAS 40 Investment Property prescribes the accounting
treatment for investment property and related disclosure
requirements.
Investment Property is property (land or building, or part
of a building, or both) held to:
Earn rentals, or
For capital appreciation, or
Both
📌 Not held for use in production or supply of goods or
services, or for administrative purposes, or for sale in the
ordinary course of business.
📌 Examples of Investment Property
Land held for long-term capital appreciation
Land held for currently undetermined future use
Building leased out under an operating lease
Vacant building held to be leased out
📌 NOT Investment Property
Owner-occupied property (PAS 16)
Property held for sale in the ordinary course of
business (PAS 2 or PFRS 15)
Property being constructed for a third party (PFRS 15)
Owner-occupied property under construction (PAS
16)
📌 Initial Recognition
Investment property is initially recognized at cost.
Cost includes:
Purchase price
Directly attributable costs (legal fees, professional
fees, property transfer taxes)
Transaction costs
❌ Excludes:
Start-up costs
Abnormal waste
Operating losses before full occupancy
📌 Subsequent Measurement Models
After initial recognition, an entity shall choose one model
and apply it consistently.
1️⃣ Fair Value Model
Investment property is measured at fair value
Changes in fair value are recognized in profit or loss
No depreciation is recognized
📌 Fair value reflects current market conditions at
reporting date.
2️⃣ Cost Model
Measured at cost less accumulated depreciation
and impairment
Follows PAS 16 cost model
Fair value must still be disclosed in the notes
📌 Transfers to and from Investment Property
Transfers are made only when there is a change in use,
evidenced by:
Commencement of owner-occupation → transfer to
PAS 16
End of owner-occupation → transfer to PAS 40
Commencement of development for sale → transfer
to PAS 2
End of construction for investment property → remain
in PAS 40
📌 Change in intention alone is NOT enough.
📌 Treatment of Transfers
From Investment Property (Fair Value Model):
To owner-occupied or inventory:
o Fair value at date of transfer becomes deemed
cost
To Investment Property:
From PAS 16:
o Measure at fair value
o Difference treated like revaluation under PAS
16
📌 Disposal of Investment Property
Investment property is derecognized:
On disposal, or
When permanently withdrawn from use and no future
economic benefits are expected
📌 Gain or loss on disposal = net disposal proceeds –
carrying amount
➡️ Recognized in profit or loss
📌 Disclosure Requirements
An entity shall disclose:
Measurement model used (fair value or cost)
Fair value of investment property
Amounts recognized in profit or loss:
o Rental income
o Direct operating expenses
Restrictions on realizability or remittance of income
Contractual obligations to purchase, construct, or
maintain investment property
📌 Simple Example
📌 A company owns a building and leases it out to tenants.
➡️ Classified as Investment Property
📌 If company uses the building as its office:
➡️ Owner-occupied property (PAS 16)
📌 Key Differences: PAS 40 vs PAS 16
PAS 40 PAS 16
Held to earn rentals or capital
Held for own use
appreciation
PAS 40 PAS 16
Revaluation model
Can use fair value model
optional
No depreciation under fair value
Depreciation required
model
📌 Exam Tips
Focus on purpose of holding the property
Always identify change in use
Fair value gains and losses go to profit or loss
Consistency in measurement model is required
