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Section 16 – Investment property
16.2 Definition of investment property
16.2.1 Extract from FRS 102 Section 16.2
16.2.2 OmniPro comment – Investment property definition
16.3 Operating lease classified as investment property
16.3.1 Extract from FRS 102 Section 16.3
16.3.2 OmniPro comment – Operating lease classified as investment property
16.4 Mixed use property or property lease to other group companies classified as investment property
16.4.1 Extract from FRS 102 Section 16.4
16.4.2.1 Mixed Use property – Classified as investment property
16.4.2.2 Property leased to other group companies
16.4.2.3 Self constructed investment property
16.4.3 Initial and subsequent measurement
16.4.3.1 Extract from FRS 102 Section 16.5-16.7
16.4.3.2.1 Investment property – initial and subsequent measurement
16.4.3.2.2 Investment property and deferred tax
16.4.3.2.3 Self-constructed properties
16.4.3.2.4 Investment property purchased under abnormal credit terms
16.5 Transfers to/from investment property
16.5.1 Extract from FRS 102 Section 16.7-16.9
16.5.2 OmniPro comment – Transfer to/from investment property
16.6.1 Extract from FRS 102 Section 16.10-16.11
16.6.2 OmniPro comment – Disclosures
16.6.2.1 Investment properties – Accounting policy
16.6.2.2 Extract from notes to the Financial Statements
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16.5 Transfers to/from investment property
16.5.1 Extract from FRS 102 Section 16.9
16.9 Unless otherwise required by this FRS, an entity shall transfer a property to, or from, investment property only when the property first meets, or ceases to meet, the definition of investment property.
16.5.2 OmniPro comment – Transfer to/from investment property
A transfer is made from investment property to PPE/inventories in the following cases:
- The property can no longer be measured reliably e.g. the property market has changed in the location where the property is and a lot of the neighboring buildings are vacant.
- The property can no longer be valued at fair value due to undue cost or effort.
- The property is moved to own use
- The property is moved to inventories
In each of the above cases, the carrying value at the time it is transferred to PPE/inventory becomes the deemed cost in PPE etc. and is depreciated over its remaining useful life from that date where a nil residual value is assumed. This is merely treated as a change in circumstances and adjusted in the year it occurs and disclosed as such in the financial statements.
A transfer is made from PPE/inventories to investment property in the following cases:
- The property can be reliably measured
- The property can be valued now without undue cost
- The property is moved from own use
- The property is moved from inventory
In each of the above cases, at the date any of the above occurs, the difference between the carrying amount in PPE at that date and the fair value is posted as a profit/loss to the profit and loss account.
Example 5: transfer to/from investment property
Company A purchased a property which met the definition of an investment property in year 1. At the end of year 3, the company transferred it to own use. The fair value as stated in the trial balance prior to the end of year 3, was CU200,000. Therefore given the change in use, Section 16 no longer applied from that date, therefore there would be a journal posted to credit investment property and debit PPE for CU200,000. At that date the company determined the remaining life was 20 years. Therefore with effect from the start of year 4, the property will be depreciated each year at CU10,000.
Example 6: Property leased to other group companies classified as investment property
Assume the date of transition to FRS 102 is 1 January 2014 and the deferred tax rate is 20% which is the sales tax (CGT) rate. Company A is a member of a group. Company A leases a property to a sister Company; Company B for 10 years and receives an annual rent of CU50,000. The property was purchased for CU150,000 and the net book value at 1 January 2014, 31 December 2014 and 2015 in the old GAAP books is CU100,000, CU90,000 and CU80,000 respectively. The directors have determined the fair value of the property at 1 January 2014 was CU200,000. Assume the property did not qualify for capital allowance purposes and the property remained at its fair value of CU200,000 at 31 December 2014 and 2015 as this still equated to fair value. Assume the property met the conditions for investment property from 1 January 2014. The adjustments required on transition are:
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Example 1: Fair value movements and deferred tax impact
Example 2: Investment Property Fair value movements and deferred tax impact
Example 3: Deferred tax asset recognition
Example 4: Purchasing on deferred credit terms
Example 5: Transfer to/from investment property
Example 6: Property leased to other group companies classified as investment property
Example 7: Extract from the notes to the financial statements – note on investment property
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