International
Accounting standard(IAS) IAS-40
What is the International Accounting Standards (IAS-40)? Describes in details:
IAS-40 (International Accounting Standard-40) is a standard issued by the International Accounting Standards Board (IASB) that provides guidance on investment property. It outlines how to account for property held for investment purposes, which may include land or buildings that are held to earn rental income or for capital appreciation.
Key aspects of IAS 40 include:
1.Definition of Investment Property:
Investment property is defined as property (land or buildings) that is held to earn rental income, for capital appreciation, or both. It does not include property used by the owner for its own operations (such as owner-occupied property) or property held for sale in the ordinary course of business.
2.Recognition:
Investment property is recognized when it is probable that the future economic benefits associated with the property will flow to the entity, and the cost of the property can be measured reliably.
3.Measurement Models:
IAS-40 allows two models for measuring investment property:
Cost Model: The investment property is carried at its cost less any accumulated depreciation and impairment losses.
Fair Value Model:
The investment property is carried at its fair value, with changes in fair value recognized directly in profit or loss in the period they occur. The fair value model does not require depreciation.
4.Subsequent Measurement:
After initial recognition, entities can choose between the cost model or the fair value model for subsequent measurement. Under the fair value model, investment properties are revalued regularly, and any gains or losses arising from changes in fair value are recorded in the income statement.
Under the cost model, investment properties are depreciated over their useful life, and any impairment is recognized.
5.Transfers of Property:
If a property changes use (e.g., from investment property to owner-occupied property or vice versa), it must be reclassified. The property is transferred at its carrying amount, and the change in classification is reflected accordingly.
6.Disclosures:
IAS-40 requires extensive disclosures regarding investment property, including:
The method used to determine fair value (if applicable).
The amounts recognized in the income statement (rental income, operating expenses).
A reconciliation of the carrying amount at the beginning and end of the period.
The existence of any restrictions on the reliability of the investment property or on the remittance of income and proceeds from the sale of the investment property.
In short, IAS-40 provides guidelines on how to account for investment property, allowing flexibility in the measurement method (cost or fair value), and ensuring transparency in reporting income from rental properties or capital appreciation.