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Depreciation of Investment Property
 
#1
18/01/2012 14:23
Hi guys
I'm new to the site. Hoping you can advise on a financial statements query. The company I am researching has an investment proporty (a commercial property) on their books. My understanding is that this property would be held at book cost. However it is being depreciated. Since the property is not linked to the creation of goods or services I don't know how the company are able to expense the cost? If it was a durable good like machinery I would expect depreciation but not from an investment holding.
Hope somebody can help.
Thanks in advance,
 
 
 
#2
18/01/2012 15:07
There are 2 accounting models for investment property:

Cost Model

After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16, Property, Plant and Equipment – cost less accumulated depreciation and less accumulated impairment losses. [IAS 40.56]

Fair value model

Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction. [IAS 40.5] Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. [IAS 40.35]
 
 
 
#3
18/01/2012 15:51
thanks Admin,
In the company acccounts it is being valued at Cost - depreciation. My only concern is that the balance sheet is not reflecting the true value of the asset since it has been heavily depreciated. I don't beleive the asset has lost value therefore to get a truer valuation of this asset, and the company I should add my own valuation to this asset.
e.g. asset cost was 10million
acc depreciaiton is 6million
asset cost of financial statement is 4m
but I value it at 9m. so I should add this value (minus tax on realised gain) to the book value of equity?
thanks in advance,
 
 
 
#4
19/01/2012 06:54
Quote
Guest wrote:
so I should add this value (minus tax on realised gain) to the book value of equity?
It depends on your goals. Of course, if we are speaking about IFRS accounting you can't change assets value as your want. But for analysis or valuation purposes you can do it.
 
 
 
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