MFRS 140

INVESTMENTPROPERTY
 LEARNING OUTCOME
AT THE END OF THIS TOPIC, YOU SHOULD BE ABLE
TO:
Define and give examples of investment properties
Explain the initial and subsequent measurement of
investment properties
Discuss the accounting treatments – recognition and
measurement – for transfers to or from investment
properties
Show the disclosure requirements for reclassification of
owner occupied properties to investment properties
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 Investment Property
 Property – (LAND or BUILDING - or part of building - or
both) held to earn rentals or for capital appreciation or both,
not for:
use in the production or supply of goods or services or for
administrative purposes, or
sale in the ordinary course of business.

 CARS FOR RENTAL AN IP??? NO

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 Investment Property - Examples
 Held for long-term capital appreciation rather than for
short-term sale in the ordinary course of business
 Held for a currently undetermined future use.
 Owned by the entity and leased out under one or more
operating leases
 Being constructed or developed for future use as
investment property

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 Non Investment Property - Examples
 Owner-occupied property, including
 property held to be used in future as owner occupied
 property occupied by employees of the owner
 property awaiting disposal
 Property currently under construction or development on behalf
of third parties
 Property leased to another entity under a finance lease
arrangement
 Property held for sale in the ordinary course of business –
inventory

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 Properties With Dual Uses
 If property can be sold or leased out separately
 Part rented out is classified as investment property (MFRS140)
 Part occupied is classified as PPE (MFRS116)

 If property cannot be sold or leased out separately

 The whole property is classified as investment property if the part
that is occupied is insignificant

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 Properties With Ancillary
Services
 If the services component is insignificant to the arrangement of the
business as a whole
 Asset is classified as investment property (MFRS140)

 If the services component is significant to the arrangement of the

business as a whole
 Asset is classified as PPE (MFRS116)
 E.g. Hotel Owner-Manager

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 Exchange Transaction
 When an investment property is acquired in exchange for non-monetary
assets, in whole or in part, the commercial substance should be considered.
 The cost of such an investment property is measured at fair value
unless:
a. the exchange transaction lacks commercial substance; or
b. the fair value of neither the asset received nor the asset given up is
reliably measurable.
 If (despite lack of market transactions) the entity is able to determine
reliably the fair value of either the asset received or the asset given up,
then the fair value of the asset given up is taken as cost of
the asset received, unless the fair value of the asset received is more clearly
evident.
 If the fair value of the asset acquired is not measured at fair value then its
cost is measured at the carrying amount of the asset given
up.
 Properties Within a Group
 Property owned by a group and occupied by the parent or
subsidiary
 Classified as PPE in the consolidated financial statements
 Classified as investment property in the financial statements
of the company that owns property

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 Recognition Criteria
 It is probable that the future economic benefits that are
associated with the investment property will flow to entity, and

 The cost can be measured reliably

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 Initial Measurement
 Initially measured at its cost

 Costs include
 Initial costs incurred when first acquired and
 Subsequent costs incurred to add to, replace part of, or service to a
property

 Day to day servicing costs – repairs and maintenance – are not

recognized in its carrying amount
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 Initial Measurement

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 Example
On 1 January 20X1, Citra Bhd acquired an investment
property in the form of building for RM22 millions. The
purchase agreement provided for settlement in full on 31
December 20X1 (before trade discount factor of 10%). RM1
million transfer duty and RM40,000 legal fees were incurred
and paid during January 20X1 in respect of the acquisition of
this property. Rates for the year ended 31 December 20X1 of
RM200,000 were paid on 30 November 20X1.
Required
Measure the cost to be recognised by Citra Bhd upon initial
recognition of the building as investment property

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 Solution
Costs Reason and Calculation RM

Purchase price – (RM22,000,000- 19,800000

cash cost RM2,200,000)
Transfer duty Directly attributable 2,000,000
costs
Legal fees Directly attributable 40,000
costs
Rates Operating cost: expensed -
off-excluded

Total   21,840,000
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 Subsequent Measurement
 Entity is allowed to choose one of the following:
 Fair value model
 Cost model
 A model, once chosen, must be applied to all its investment properties
 A voluntary change is made only if the change results in the financial
statements providing reliable and more relevant information about the
effects of transaction, other events, or conditions in the entity’s financial
position, performance or cash flows.

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 Cost Model
 Property is measured in accordance with MFRS 116 -
at cost less accumulated depreciation and
accumulated impairment losses

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 Fair Value Model
 Property is measured at fair value or market value.
 Fair value – amount for which an asset could be exchanged
between knowledgeable, willing parties in an arms length
transaction and should reflect market conditions at the balance
sheet date

 Any gain or loss arising from a change in fair value is recognized in

SOPL for the period in which it arises.

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 Fair Value Model

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 Fair Value Model
 An entity must ensure that assets and liabilities are not double-
counted:
 Equipments – lifts or air conditioning – included in the fair value is not
recognized separately as property, plant and equipment
 Furniture included in the fair value of an office building is not recognized
separately as property, plant and equipment
 Prepaid or accrued operating lease income – accounted as separate liability or
asset – is excluded from the fair value
 Any recognized lease liability is added back to determine the carrying amount

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 Inability to Determine Fair Value
Reliably

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 Example 1a
Nyumee Bhd is involved in the manufacturing of biscuits and
confectioneries. On 1 January 2012, the company acquired a building in
Pulau Langkawi at a price of RM7,000,000. Legal and transfer fees of
RM500,000 and RM20,000 were incurred respectively. The estimated
useful life of the building is 50 years. The building was rented out
immediately to Trex Bhd for RM388,000 per month, who used the
building as a hotel.
The fair values of the building on 31 December 2012 and 31 December
2013 were RM7,990,000 and RM7,828,000 respectively. Nyumee Bhd
adopts the revaluation model and the fair value model for the subsequent
measurement of its property, plant and equipment and investment
property respectively
Discuss the accounting treatment of the building for years
ended 31 December 2012 and 2013.

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 Solution
The building is classified as an investment property on 1
January 2012 at the initial cost of
RM7,520,000(7m+500k+20k). Since Nyumee Bhd has
adopted the fair value model for its investment properties,
changes in their fair value will be recognized in the
statement of profit and loss. An increase in the fair value
of RM470,000(7,990,000 -7,520,000)on 31 December 2012
shall be credited to the statement of profit or loss, while a
decrease in the fair value of RM162,000(7,828,000-
7,990,000) shall be written off in the statement of profit or
loss. The building shall not be depreciated.

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 Journal Entries
2012 Dr Investment RM  
property 7,520,000
  Cr Cash/ Payable   RM
7,520,000
         

  Dr Investment RM 470,000  
property
  Cr SOPL – change   RM 470,000
in fair value

         

2013 Dr SOPL – change RM 162,000  

in fair value

  Cr Investment   RM 162,000
property
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 Transfers To or From Investment
Property
 Transfers are made when there is a CHANGE IN USE

Transfers Proof Of Change In Use

MFRS140 IP to MFRS116 PPE Commencement of owner-

occupation

MFRS116 PPE to MFRS140 IP End of owner occupation

MFRS140 IP to MFRS102 Commencement of development

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Inventories with a view to sale
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Transfers
Basically, assets like building and land may undergo
changes in usage.
For example, a building used for administrative may
later be rented out.
MFRS 140 MFRS 116

Accounting Treatment:
At the date of transfer/change, the value use will be the
fair value. Subsequently the treatment will be according
to MFRS116.
 Refer to Example 1a
In 2014, the managements of Nyumee Bhd made a
decision to diversify into the hotel industry. They gave
Trex Bhd six months’ notice to vacate the building and
eventually on 1 July 2014, the company began its hotel
operations using the building. On this date, the fair value
of the building was determined to be RM7,920,000.
Required:
Advise Nyumee Bhd on the accounting treatment of the
transfer of the investment property to owner-occupied
property on 1 July 2014 in accordance with MFRS 140
Investment Property.
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 Solution
Under MFRS 140 Investment Property, on the date of
the transfer on 1 July 2014 , the owner occupied
property will be measured at the fair value of the
investment property of RM7,920,000 . The difference
between the fair value at transfer date and the previous
carrying amount of RM92,000 (7,920,000 – 7,828,000)
is recognized in the statement of profit or loss. From here
onwards, the building shall be depreciated over its
remaining useful life of 47.5 years.

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Example 2
Kay El Bhd purchased a property costing RM9,000,000
on 1 January 2011. This property was rented out to
OMG Bhd at an annual rental of RM 250,000. The
rental has been negotiated at arm’s length.
On 1 January 2012, the property was vacated by OMG
Bhd and Kay El decided to use the property as
administration office. The fair value of the property at
that time was RM10,500,000.
Assuming Kay El Bhd adopts the fair value model
in its measurement subsequent to the initial
recognition, show the relevant journal entry.
 Solution
1.1.2011
Dr Inv Property 9m
Cr Cash/Payable 9m

31.12.11
Dr Inv Property 1.5m
Cr SOPL 1.5m
1.1.2012
Dr PPE 10.5m
Cr Inv Property 10.5m
MFRS 116 MFRS 140
Accounting treatment.
At the date of transfer/change, the value use will be the
fair value. The fair value will be compared with the
carrying value (cost – accumulated depreciation) at the
date of transfer. Any surplus is to be accounted in
revaluation reserve and deficit to the SOPL.
Subsequently the treatment will be according to
MFRS140.
Example
On 31.12 2012, Boleh Bhd vacated a building in
Shah Alam which has been its administrative centre
and move to a new building in Putra Jaya. The
former building has a carrying value of RM5 million
and is now rented out to 4 tenants. The fair value of
the said building is RM7 millions and is treated as
investment property under MFRS 140. On 31.12.
2013, the property has a market value of RM7.5
millions.
Solution
31.12.2012. at the date of transfer
Dr. Building (IP) 7 million
Cr Building (PPE) 5
million
Cr Asset rev reserve 2 million
31.12.2013
Dr. Building (IP) 0.5 million
Cr. SOPL /Gain 0.5 million
 Disposals of Investment Properties
 Investment property is eliminated from the SOFP:
 On disposal by sale or by entering into a finance lease; or
 When it is permanently withdrawn from use

 Difference between the net proceeds and the carrying amount - gain
or loss – is recognized in profit or loss
 Compensation from 3rd parties for IPs that have been impaired, lost
or given up are recognized in the income statement when receivable.

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 Disclosure
 An entity shall disclose:
 Whether the fair value model or cost model has been applied
 Fair value model- reconciliation of carrying amount at beginning and end
of period
 Cost model – depreciation method, useful lives, gross carrying amount and
accumulated depreciation at beginning and end of period
 Criteria it uses to distinguish investment property from owner occupied
property
 Methods and assumptions used to determine fair value
 Rental income, operating expenses and changes in fair value

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