Financial Reporting of Investment Property Vs. PPE

Under US GAAP, there is no distinction between investment property and other long-lived assets.

Under IFRS, investment property is distinguished from other long-lived asset. An investment property is the property that the firm owns for earning rental income, earning capital gains or both.

Valuation of Investment Property

The firm has the choice to use historical cost or fair value method. However, whichever method the company chooses, it must use the same method for all investment properties.

  • Cost Model: Same as the cost model for valuing PPE
  • Fair value model: Different from revaluation model used for PPE. In revaluation model, if fair value is more than historical cost, no gain is reported in income statement. Instead the amount is reported as a part of shareholder’s equity in an account called revaluation surplus. For investment property, the gain is recorded in the income statement and there is no revaluation surplus account.
  • Valuation model used
  • How fair value is determined
  • Reconciliation of carrying amounts at beginning and end
  • If cost model is used, disclose the fair value and other disclosures required for other long-lived assets

Disclosures Required

Transfers Into and Out of Investment Property

Sometimes the firm may change how it uses its property. For example, it may change a self-occupied property to investment property and vice versa. If cost model is used to value such a property, then there is no change in carrying value, however, if fair value model is used, financial statement treatment is as described below:

Transfer FromTransfer ToTreatment
Own occupied propertyInvestment propertyTreat as revaluation.Gain is recognized only if it reverses previously recognized loss.
InventoryInvestment propertyRecord gain/loss in income statement based on the difference between fair value and carrying value.
Investment propertyOwn occupied property or InventoryRecord fair value of the asset on transfer date as its cost.

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