Lecture

INVESTMENT PROPERTY
MFRS140

CIA2001: ADVANCED FINANCIAL ACCOUNTING &

REPORTING
 Slide 2

MFRS 140
Defines Investment Property (Para 5): property
(land or a building / both) held to earn rentals or
capital appreciation or both, rather than use in
the business or for sale in the ordinary course
of business.
Includes:
Property held by the owner
Property held by the lessee under a Finance Lease
Excludes:
Owner-occupied property
Property occupied by employees of the owner
 Slide 3

MFRS 140
Owner-occupied property property held (by the
owner/by the lessee under a finance lease) for use
in the production / supply of goods or services / for
administrative purposes.

Para 8- examples of Investment Property:

a) Land held for LT capital appreciation rather than for ST sale in
the ordinary course of business
b) Land held for a currently undetermined future use.
c) A building owned by the entity (or held by the entity under a
finance lease) and leased out under one or more operating
leases
d) A building that is vacant but is held to be leased out under one
or more operating leases
e) Property that is being constructed/ developed for future use as
IP.
 Slide 4

How to treat the property if one portion is held to earn rentals and
another portion is held for use in the business?

MFRS 140 (Para 10):

a) If the portion could be sold separately, an entity should account for

the portion as investment property and as PPE separately;

b) If the portions could not be sold separately, the property qualifies

as investment property only if an insignificant portion of the
property is held for use in business.
Judgement is needed (Para 14)

MFRS 140, Para 11-12
If an entity provides ancillary services to the
occupants of a property:
INSIGNIFICANT SERVICES:
E.g. the owner of the building
provides security &
maintenance services to the
lessees.
Investment Property
Slide 5
SIGNIFICANT SERVICES:
E.g. owner-managed hotel
provides services to
guests.
Owner-occupied property
 Slide 6

Illustrations:
a) MM Bhd owns a piece of land, in which 20% is used
for its operating activities, the balance is rented out.
b) MM Bhd used a building as a warehouse for its
inventory.
c) MM Bhd purchased a twenty storey building , and one
floor is used for office administration and the balance
is rented out.
d) MM Bhd purchased a piece of land, where 20 % of it
is rented out and the balance is used as the site of its
transport facilities.
e) MM Bhd leased out the building to its subsidiary.
 Slide 7

Recognition
MFRS 140 (Para 16): should be recognised as an asset
if and only if:
a) It is probable that future economic benefits associated
with the IP will flow to the entity; and
b) The cost of the IP can be measured reliably.
 Slide 8

Measurement
MFRS140 (Para 20): upon initial recognition, it shall be
measured at cost. Transaction costs shall be included
in the initial measurement.
Subsequent to initial recognition: An entity should
choose the Cost model or FV model as its accounting
policy; and apply the chosen policy consistently (para
30).
 Slide 9

Initial Cost of Investment Property (IP)

1. Purchased IP: Purchase price + any directly

attributable expenditure
2. Self-constructed IP: cost of raw material,
direct labour and factory overheads that can
be allocated to the asset. Borrowing Cost?
MFRS123 (either expense or capitalised as
part of the assets cost)
 Slide 10

Cost Model
An entity should measure its IP in accordance with
MFRS 116 Property, Plant and Equipment.
Assets should be carried at cost (or revalued amount)
Assets are subjected to depreciation
Assets are subjected to impairment test
 Slide 11

Cost Model
Example:
On 1 January 20x1, MM Bhd purchased a factory for
investment purposes. The cost of factory was RM
100 million and is expected to have useful life of 50
years with no salvage value.
1 Jan 20x1
Dr Investment Property 100,000,000
Cr Bank 100,000,000
31 Dec 20x1
Dr Depreciation expense 20,000,000
Cr Accumulated depreciation 20,000,000
 Slide 12

FV Model
MFRS 140 (Para 38): The IP is measured at
its FV, reflecting the market conditions at the
balance sheet date.
Para 35: A gain or loss arising from a change
in the FV should be recognised in profit or loss
for the period in which it arises.
Depreciation?
Impairment test?
 Slide 13

FV Model
Example:
On 1 January 20x1, MM Bhd purchased a factory for
investment purposes. The cost of factory was RM 100
million and is expected to have useful life of 50 years
with no salvage value. As at 31 Dec 20x1, the market
value of building was RM105 million, but as at 31 Dec
20x2, it dropped to RM 95 million.
1 Jan 20x1
Dr Investment Property 100,000,000
Cr Bank 100,000,000
 Slide 14

FV Model
31 Dec 20x1
Dr Investment Property 5,000,000
Cr FV gain on investment property 5,000,000
(to record fv gain for the year)

31 Dec 20x2
Dr FV loss of investment property 10,000,000
Cr Investment property 10,000,000
(to record fv loss for the year)
 Slide 15

Transfer
ASSETS INVESTMENT PROPERTY

MFRS140 (para 57): transfer to or from investment

property should be made when and only when there is a
change in use, evidenced by:
a) Commencement of owner-occupation, for a transfer from IP to
OOP
b) Commencement of development with a view to sale, for a
transfer from IP to inventories
c) Commencement of operating lease to another party, for a
transfer from inventories to IP.

If the entity uses the COST MODEL, the transfers do not

change the carrying amount & the cost of that property for
measurement/disclosure purposes (Para 59).
 Slide 16

Transfer
INVESTMENT PROPERTY (FV) PPE OR INVENTORIES
Para 60 : FV of property at the date of transfer is the
deemed cost for subsequent accounting under
MFRS116 or MFRS102
PPE INVESTMENT PROPERTY (FV)
Para 61 : the difference between the carrying amount of
PPE and its FV at the date of transfer should be
accounted for as a revaluation surplus/deficit in
accordance with MFRS116
INVENTORIES INVESTMENT PROPERTY (FV)
Para 63: the difference between the carrying amount of
inventories and its FV at the date of transfer should be
recognised in the profit or loss.
 Slide 17

Derecognition

Para 66: an IP should be derecognised:

1. On disposal
2. When the property is permanently withdrawn from
use and no future economic benefits are expected
from its disposal.

Para 69 gain/loss arise from its disposal

should be recognised in profit/loss.
 Slide 18

End of Lecture