IAS 40 Investment Property requires an entity to choose a single accounting policy — either the fair value model or the cost model — and apply it to all of its investment property. It is highly unlikely that switching from the fair value model to the cost model would result in a more relevant presentation.

What Is Investment Property?

The Standard defines investment property as property (land or a building, or part of a building, or both) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business.

Among the examples of investment property given by the Standard is land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.

The Standard explains that investment property is held to earn rentals or for capital appreciation or both, and therefore generates cash flows largely independently of the other assets held by an entity; this distinguishes investment property from owner-occupied property. The Standard also excludes from the definition property intended for sale in the ordinary course of business or in the process of construction or development for such sale, for example property acquired exclusively with a view to subsequent disposal in the near future or for development and resale.

The Accounting Policy Choice: Fair Value or Cost?

The Standard provides that, with the exception noted in paragraph 32A, an entity shall choose as its accounting policy either the fair value model or the cost model, and shall apply that policy to all of its investment property.

The Standard notes that it is highly unlikely that a voluntary change from the fair value model to the cost model would result in a more relevant presentation.

How Is Investment Property Measured Under Each Model?

Under the fair value model, an entity measures all of its investment property at fair value after initial recognition, except in the cases described in paragraph 53. A gain or loss arising from a change in the fair value of investment property is recognised in profit or loss for the period in which it arises.

Under the cost model, an entity measures investment property, after initial recognition, in accordance with the requirements in IAS 16 for the cost model in all other cases (aside from property classified as held for sale, or held by a lessee as a right-of-use asset, which are dealt with under other Standards).

When Is Investment Property Recognised as an Asset?

The Standard states that an owned investment property shall be recognised as an asset when, and only when, it is probable that the future economic benefits associated with the investment property will flow to the entity, and the cost of the investment property can be measured reliably.

Legal References

For questions about your specific situation, you can ask the Private Sector Accounting Helper on Helpers, or consult a licensed chartered accountant.