03 IAS 40 Advanced - Slides - Copy
-
Upload
olalekan-popoola -
Category
Documents
-
view
37 -
download
0
Transcript of 03 IAS 40 Advanced - Slides - Copy
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 1
IAS 40Investment PropertyAdvanced Baseline
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 2
Learning objectives
By the end of this session you should know:How to identify an investment propertyHow investment property should be measuredThe key disclosure requirements
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 3
Investment Property - Definition
Property = land or a building (or part of a building) or bothInvestment property is property held for
RentalsCapital appreciation
Not property held forUse in production, supply of goods / services or for administrationSale in ordinary course of business
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 4
Investment Property – Operating lease option
Property held by a lessee under an operating lease may be classified and accounted for as investment property if,
The property otherwise meets the definition of an investment property, andLessee uses the fair value model.
Option available on a property-by-property basis
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 5
Not investment property (1)
Sale in ordinarycourse of business Owner-occupied Constructed for
third party
InventoryIAS 2
PropertyIAS 16
ContractIAS 11
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 6
Not investment property (2)
Property under finance lease
Employee occupiedproperty
LeaseIAS 17
PropertyIAS 16
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 7
Not investment property (3)
Biological assets Mineral rights, exploration/extraction
IAS 41 IFRS 6
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 8
Examples of investment property
Land held for long-term capital appreciationLand held for undetermined future useBuilding owned and leased out
Including vacant building that will be leased out under operating lease
Property under construction or development For future use as investment property
Property being redevelopedFor continued use as investment property
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 9
Dual purpose – Able to split
IAS 16
Owneroccupied
IAS 40
Rentalincome
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 10
Dual purpose – Unable to split
IAS 16owneroccupied
rentalincome
IAS 40
owne
roc
cupi
ed
rental income
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 11
Ancillary services
IAS 16services rentalincome
IAS 40
serv
ices
rental income
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 12
Hotels
Owner-managed = owner-occupied IAS 163rd-Party-managed = involves judgment:
Passive investor = investment propertySignificant exposure to operating cash flow variation= owner-occupied IAS 16
Disclose classification criteria
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 13
Recognition
Investment property recognised as an asset when:It is probable that the future economic benefits associated with the investment property will flow to entity, and The cost of the investment property can be measured reliably
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 14
Initial measurement
Initially, measured at cost (transaction costs included):Purchased or self-constructed investment property:
Purchase priceAny directly attributable expenditure (e.g., professional fees for legal services, property transfer taxes)If not ready for its intended use on acquisition, then consider if requirements of IAS 23 Borrowing Costs should be applied
Property held under lease:Cost according to IAS 17.20
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 15
Subsequent measurement (1)
Fair value Changes in profit or lossExemption if cannot reliably determine on ongoing basis
Cost modelAs per IAS 16DepreciateImpairment losses
Apply choice to all investment propertyChange from FV option to cost option not allowed
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 16
Subsequent measurement (2)
Property under construction / development:Fair value model
If fair value is determinable reliably, then it should be followedIf fair value is not determinable reliably but is expected to be so when construction is complete, then at cost until the fair value is determinable reliably
Cost modelFollow IAS 16 requirements
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 17
Measurement of fair value, if no active market
IncludeCurrent market conditionsCurrent lease arrangements and expected cash inflows and outflows
ExcludeEstimates based on atypical arrangementsTransaction cost of saleDouble-count of assets and liabilitiesExpected cash outflows for improvementExpected cash inflows after improvement
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 18
Transfers to investment property carried at fair value
InventoryIAS 2
InvestmentProperty at FV
FV adjustment=
Profit or loss
Owner occupiedIAS 16
InvestmentProperty at FV
FV adjustment=
Revaluationunder IAS 16
Investment Property at cost
InvestmentProperty at FV
Change in policy=
Equity
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 19
Transfers from investment property carried at fair value
InvestmentProperty
InventoryIAS 2
Owner occupiedIAS 16
Fair valuebecomes
new cost basis
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 20
Retirements and disposals
Eliminate items of investment propertyOn disposal, or When permanently withdrawn from use and no future benefits expected through disposal
Difference between carrying amount and net disposal proceeds recognised in profit or loss
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 21
Case study
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 22
Key disclosures – Both models
Criteria to distinguish between investment property and owner-occupied property and inventoryMethods, significant assumptions to determine fair valueExtent to which independent valuer involved and any adjustments to the valuation obtainedRental incomeDirect operating expenses
From investment property generating rental incomeFrom vacant investment property
Material contractual obligations, including repairs, maintenance
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 23
Key disclosures
Fair value modelReconciliationInformation on property for which fair value cannot be determinedWhether properties held under operating leases have been classified as investment property
Cost modelReconciliationFair value, orInformation on property for which fair value cannot be determined
© 2009 KPMG International. KPMG International is a Swiss Cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. IAS 40 - 24
Key learning points
Investment property is held for rentals or capital appreciationTypical classification issues: dual-use property / ancillary servicesRecognised initially at costSubsequently all investment property should be measured using either the fair value model or the cost modelFair value model with changes in fair value recognised in profit or lossDisclosure of the fair value of all investment property is required, regardless of the measurement model used