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Transfers to/from investment property
Extract from FRS 102 Section 16.7-16.9
16.8 If a reliable measure of fair value is no longer available without undue cost or effort for an item of investment property measured using the fair value model, the entity shall thereafter account for that item as property, plant and equipment in accordance with Section 17 until a reliable measure of fair value becomes available. The carrying amount of the investment property on that date becomes its cost under Section 17. Paragraph 16.10(e)(iii) requires disclosure of this change. It is a change of circumstances and not a change in accounting policy.
16.9 Other than as required by paragraph 16.8, 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.
OmniPro comment
A transfer is made from investment property to PPE 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 that time transferred to PPE/inventory becomes the deemed cost in PPE 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 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 2: 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 the end of year 3, was €200,000. Therefore given the change in use, Section 16 no longer applied from that date, therefore there would be journal posted to credit investment property and debit PPE for €200,000. 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 €10,000.
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