Question

Identify and summarise the accounting policies relating to investment properties (AASB3 & AASB140) and how these are dictated by regulation. Emphasise how this manifests and impacts in the financial statements

Answer 1

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. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors states that a voluntary change in accounting policy shall be made only if the change results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. It is highly unlikely that a change from the fair value model to the cost model will result in a more relevant presentation. This Standard requires all entities to measure the fair value of investment property, for the purpose of either measurement (if the entity uses the fair value model) or disclosure (if it uses the cost model). An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. An entity may: (a) choose either the fair value model or the cost model for all investment property backing liabilities that pay a return linked directly to the fair value of, or returns from, specified assets including that investment property; and (b) choose either the fair value model or the cost model for all other investment property. Some insurers and other entities operate an internal property fund that issues notional units, with some units held by investors in linked contracts and others held by the entity. does not permit an entity to measure the property held by the fund partly at cost and partly at fair value. sales of investment property between pools of assets measured using different models shall be recognised at fair value and the cumulative change in fair value shall be recognised in profit or loss. Accordingly, if an investment property is sold from a pool in which the fair value model is used into a pool in which the cost model is used, the property’s fair value at the date of the sale becomes its deemed cost.

The purpose of defining a business is to distinguish between the acquisition of a groupof assets that does not constitute a business, such as a number of desks,bookcases and filing cabinets — and the acquisition of a business.

the definition of business in AASB 3 does not require the entity to create outputs. The definition only requires that the assets be capable of providing a return. Hence, an entity which is in the development stage, such as a mining operation that has not yet produced ore for sale, can still be classified as a business. It is also not necessary that the entity actually be producing outputs at the time of the acquisition, or even that theacquirer plans to use the assets in a particular fashion immediately. As long as theassets are capable of producing a return, the assets constitute a business.

Financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it.