IFRS – IAS 40: Investment property

The International Accounting Standards Committee (IASC) released International Accounting Standard 40 (IAS 40) to address the topic of Investment Property. 

Often times a business will identify and purchase property such as real estate for the purposes of investing and selling for a profit at a later date, earn rental income, hold for an undetermined future use, etc.  What often isn’t classified as investment property would be items such as property being used to house administration functions of the business or production facilities being used.

Treatment of Investment Property differs from that of other real property, in that after it is measured at cost during purchase, it is to be written up or down based on market indicators of fair value.  If this is not possible due to market conditions, the adjustment to fair value is not to be recorded and normal treatment under IAS 16 – Property, Plant & Equipment shall be utilized until disposal of the property.

IAS are principles based standards, rather than strict rules based standards that govern international accounting. IAS standards differ from IFRS standards in that they were introduced prior to 2001, whereas IFRS were produced after this date by the IASB, or the International Accounting Standards Board. When determining the hierarchy of these, the IAS is considered to be the building blocks in which the newer and more relevant IFRS are founded and therefore IFRS is more authoritative when these conflict.

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