Question

Suppose if i got two separate lots of land which only for development(not for sale). I need to do the accounting treatment for the land. So my question is Do we need to revalued (Gain or Loss) the land independently or together ? Plz include the particular reference !!

Answer 1

IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both). Investment properties are initially measured at cost and, with some exceptions. may be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognised in profit or loss.

Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. [IAS 40.5]

Examples of investment property: [IAS 40.8]

• land held for long-term capital appreciation
• land held for a currently undetermined future use
• building leased out under an operating lease
• vacant building held to be leased out under an operating lease
• property that is being constructed or developed for future use as investment property

Property held under an operating lease. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property provided that: [IAS 40.6]

• the rest of the definition of investment property is met
• the operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases
• the lessee uses the fair value model set out in this Standard for the asset recognised

An entity may make the foregoing classification on a property-by-property basis.

Recognition

Investment property should be recognised as an asset when it is probable that the future economic benefits that are associated with the property will flow to the entity, and the cost of the property can be reliably measured. [IAS 40.16]

Initial measurement

Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy. [IAS 40.20 and 40.23]

Measurement subsequent to initial recognition

IAS 40 permits entities to choose between: [IAS 40.30]

• a fair value model, and
• a cost model.

One method must be adopted for all of an entity's investment property. Change is permitted only if this results in a more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a fair value model to a cost model.