Disposals
An investment property should be derecognised, (i.e. removed from the Statement of Financial Position) on disposal, or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.
A disposal may be achieved by the sale of the property or leasing it by means of finance lease.
Use IAS 18 – Revenue to help you determine the date of disposal and recognition of the revenue from the sale of the property.
Remember: the risk and rewards of ownership must transfer before revenue can be recognised.
Gains / Loss on Disposal
Gains or losses on the disposal of investment properties are the difference between the net disposal proceeds of the investment property and the carrying amount of the asset.
Gains or losses on the disposal of an investment property are included in profit or loss in the statement of comprehensive income in the period in which the disposal occurs.
The consideration receivable on the disposal of investment property is recognised initially at fair value.
If any extended payment terms are allowed, the consideration received may need to be split out between a cash price equivalent and the interest revenue using the effective interest method.
3 Types of Disclosures
- General
- Fair value model
- Cost model
1. General
An entity must disclose the following in the notes to the financial statements, under IAS 40 – Investment Property:
- Whether the fair value model or the cost model is used
- If it applied the fair value mode; whether and under circumstances property held under operating leases are classified and accounted for as investment property.
- The extent to which the fair value of investment property (per the financial statements) was based on a valuation by a qualified, independent valuer with relevant, recent experience. If no such valuation took place, this must be disclosed.
- Amounts recognised in profit or loss for:
- rental income from investment property
- direct operating expenses in relation to investment property
- the existence and amounts of any restrictions (e.g. mortgages or charges) on the realisability of investment property and the remittance of income and proceeds of disposal.
- Any contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements
NB – These disclosures are in addition to the disclosure requirements of IAS 17 – Leases
2. Fair Value Model Disclosures
In addition to the disclosures just mentioned, an entity that applies the fair value model of presentation must disclose a reconciliation between the carrying amount of investment property at the beginning of the period and at the end of the period, showing:
- additions during the year
- additional resulting from assets acquired through business combinations
- assets classified as held for sale in accordance with IFRS 5
- net gains or losses from fair value adjustments
- transfers to and from inventories or owner occupied property
- other changes
This reconciliation should show separately any amounts in respect of investment properties included at cost because their fair values cannot be estimated reliably.
If there are any investment properties recorded at cost instead of fair value, the following should be disclosed:
- a description of the property
- an explanation as to why fair values cannot be determined reliably
- if possible, the range within which the property’s fair value is likely to lie.
3. Cost Model Disclosures
An entity that uses the cost model must also disclose:
- The depreciation methods used
- The useful lives or depreciation rates used
- Gross carrying amounts and accumulated depreciation at the beginning and at the end of the period
- A reconciliation between opening and closing value of investment property showing:
- additions
- acquisitions through business combinations
- depreciation
- assets classified as held for sale in accordance with IFRS 5
- impairment losses
- transfers, and
- other changes
When the cost model is used, the fair value of investment property should also be disclosed.
If the fair value cannot be estimated reliably, the following disclosures should be made (we’ve looked at them earlier, but just to refresh):
- a description of the property
- an explanation as to why fair values cannot be determined reliably
- if possible, the range within which the property’s fair value is likely to lie.