Definitions:

The carrying amount is the value of the asset shown on the balance sheet.

actual cost is the amount of cash (or cash equivalents) paid and the fair value of any other consideration given to acquire the asset at the time of its acquisition or creation. For share-based payments, see IFRS 2.

fair value is the amount of money for which an asset can be exchanged or a liability settled in a transaction between knowledgeable, willing parties.

investment property is the property represented the following types assets:

3rd part of the building

4 land and buildings

TO investment property not applicable own, owned or tenant:

1 used by the owner or lessee in the production, supply of goods, services or for administrative purposes;

2 held for sale in the ordinary course of business.

An investment property is held to earn a rental income, or to increase the value of capital, or both.

Investment property examples:

(1) land held for long-term capital appreciation and not for sale in the course of ordinary activities companies;

(2) land held for possible future commercial use. Land is treated as property intended to increase the value of the company's capital;

(3) buildings owned by the company (including those under finance leases) as well as buildings leased out under operating leases;

(4) an unoccupied building held for operating lease.

Funds owned by the company may be intended simultaneously for:

1 generating rental income or for the purpose of increasing the value of capital,

2 production of goods, products, works, services, or for administrative purposes.

If objects used for different purposes can be sold or leased separately under a financial lease agreement, then they are kept separately.

If parts of one property cannot be sold separately, such property is recognized as investment property, provided that the part of the property used for own needs is immaterial for the purposes of sale, supply of goods, services or for administrative purposes.

Investment property is accounted for as an asset only when:

1. it is probable that the investment property will provide economic benefits in the future and

2. The value of an investment property can be measured reliably.

The Company does not include repair and maintenance costs in the value of investment property. Such costs are recognized in the income statement as incurred.

Examples of costs that must be reported as an expense and cannot be capitalized:

(i) start-up costs (unless there is a need to bring the facilities to a condition in which they can operate in the production mode determined by the management of the company),

(ii) operating costs incurred before the investment properties have reached their planned operating performance,

(iii) excess value material expenses, labor costs, other resources used in the construction or reconstruction of property.

Fair value differs from value in use.

Fair value reflects the price of investment property in the open market.

Value in use reflects an entity's estimate of the value of investment property, which may not be applicable in an open market. Therefore, fair value does not reflect the following factors, which are not available to knowledgeable, willing buyers and sellers:

(1) the added value created as a result of the formation of a portfolio of investment properties located in different locations;

(2) synergies (associations) of investment property and other assets;

(3) legal rights or legal restrictions specific only to the present owner of the property; and

(4) tax benefits or tax costs specific to the present owner.

These elements will be included in the consumer cost.

In determining the fair value of investment property, an entity considers structurally articulated items (property, property, plant and equipment) as part of investment property.

Fair value of investment property:

q does not reflect future capital expenditures to improve or expand facilities

q does not reflect economic benefits from future costs.

Under IAS 17, an investment property owner must disclose in its financial reporting information on all assets leased.

An entity that holds investment property on a leasehold basis must disclose finance leases from the perspective of the lessee and operating leases from the perspective of the lessor.

The company must disclose:

(1) what method of accounting it uses, at fair value or at cost;

(2) if it uses the fair value model, whether it classifies and accounts for an operating lease property interest as investment property, and if so, under what conditions;

(3) if classification is difficult, what criteria does the entity use to distinguish between investment property and funds held for own use and investment property and funds held for sale in the ordinary course of business;

(4) the methods and assumptions used to determine fair value, including whether fair value has been determined on the basis of evidence market information or taking into account other factors determined by the nature of ownership or the absence of comparable market information;

(5) whether the fair value of the investment property was determined as a result of a valuation by an independent appraiser with an appropriate professional classification and fresh experience in valuing investment property. If no such assessment has been made, this fact shall also be disclosed;

(6) the amounts recognized in the income statement and reflecting:

q rental income from investment property;

q direct operating expenses (including repair and maintenance costs) associated with an investment property from which rental income was received in reporting period;

q direct operating expenses (including repair and maintenance costs) associated with an investment property that did not generate rental income during the period;

q cumulative changes in fair value recognized in the income statement on the sale of investment property from an asset bank using the cost model to an asset bank using the fair value model;

q the existence and extent of restrictions associated with the sale of investment property, reduction of income or proceeds due to the company upon disposal of investment property;

q contractual obligations for the acquisition, construction of investment property, or for repair, maintenance, reconstruction.

An entity using the fair value method of accounting must disclose a reconciliation of the carrying amount of investment property at the beginning and end of the period that reflects:

(1) gains on investment property, separately disclosing gains from new acquisitions and from subsequent expenses included in the asset's carrying amount;

(2) gains in investment property from business combination acquisitions

(3) disposal;

(4) net profit or loss arising from fair value adjustments;

(5) exchange differences arising from the translation of financial statements from one currency to another and from the translation of transactions into foreign currency in the reporting currency of the reporting company;

(6) the transfer of items from inventories, as well as from own-account funds to investment property, and vice versa;

(7) other changes.

In the event of a significant adjustment to the estimate for financial reporting purposes, an entity shall disclose a reconciliation between the original and adjusted amounts included in the financial statements, showing separately the total amount of lease liabilities recognized from the sale and leaseback and any other material adjustments.

The company must additionally disclose the following:

(1) a description of the investment property;

(2) an explanation why the fair value of the investment property cannot be measured reliably;

(3) if possible, provide a quantitative range within which fair value could be estimated; And

(4) on disposal of investment property that was not carried at fair value:

(i) the fact that the entity has sold investment property not carried at fair value;

(ii) the carrying amount of that investment property at the time of sale; And

(iii) the amount of profit or loss recognized.

An entity using the cost method of accounting must also disclose:

(1) the depreciation methods used;

(2) applicable useful lives or depreciation rates;

(3) gross carrying amount and accumulated amortization (together with accumulated impairment losses) at the beginning and end of the period;

(4) a reconciliation of the carrying amount of investment property at the beginning and end of the period, reflecting:

(i) gains on investment property, with separate disclosure of gains from new acquisitions and from subsequent expenses recognized as an asset;

(ii) gains in investment property resulting from business combination acquisitions;

(iii) disposal;

(iv) depreciation;

(v) the amount of impairment losses recognized in the reporting period and the amount of impairment losses reversed in the reporting period in accordance with IAS 36;

(vi) exchange differences arising from the translation of financial statements from one currency to another and from the translation of foreign currency transactions into the reporting entity's reporting currency;

(vii) the transfer of funds from inventories and non-leaseable property, plant and equipment to and from investment property; And

(viii) other changes; And

(5) the fair value of the investment property. If an entity cannot measure reliably the fair value of an investment property, it must disclose the following:

(i) a description of the investment property;

(ii) an explanation why the fair value of the investment property cannot be measured reliably; And

(iii) if possible, indicate the quantitative boundaries within which fair value could be estimated.

Questions for self-control (multiple choice)

1. Fair value is the amount for which an asset:

1. Can be exchanged between related parties.

2. Can be sold as salvage.

3. Can be exchanged by knowledgeable independent parties interested in the transaction.

2. Investment property may be:

2. Building.

3. Part of the building.

4. Land and building together.

5. All of the above.

3. Investment property may be taken into account against:

1. Owner.

2. Lessor, under a finance lease.

3. Lessee, under a finance lease.

6. All of the above

4. Means used by the owner:

1. May be treated as investment property.

2. Cannot be counted as investment property.

3. May sometimes be treated as investment property.

5. Funds held by a lessee under an operating lease may be treated as investment property, but only if:

1. These means is a hotel.

2. The lessee accounts for property at fair value.

3. Operating lease term exceeds 20 years.

6. If the funds are held by the lessee under an operating lease and are classified as investment property, then:

1. All leased assets under an operating lease are classified as investment property.

2. All investment property will be carried at fair value.

3. Depreciation will not be charged.

7 . What is an example of an investment property:

1. Land intended for long-term capital appreciation.

2. Land held for future use. Such land is considered to be intended for capital appreciation.

3. A building that the company owns (including under a finance lease) and rents out under an operating lease.

4. Unoccupied building intended for operating lease.

5. Funds held for sale in the ordinary course of business.

6. Funds created for third parties.

7. Non-rentable funds.

8. Funds purchased for use as investment property.

9. Existing investment property converted for long-term use as an investment property.

10. Financial lease funds.

8. If funds are partly investment property and partly not leased, the entity shall account for them as:

1. Investment property.

2. As funds used for their own needs.

3. Each part must be counted separately.

9. If the company provides significant additional services to tenants related to the objects leased to them:

1. Funds must be classified as non-leaseable and not as investment property.

2. Funds must be classified as investment property and not as own use.

3. Payment for services must be capitalized.

10. The parent company leases the funds of its subsidiary.

Funds may be classified as investment property:

1. In the reporting of a subsidiary.

2. In the consolidated financial statements.

3. In the separate financial statements of the parent company.

11. Repair and maintenance costs are usually:

1. Capitalized.

2. Recognized as an expense in the income statement in the period in which they are incurred.

3. Accounted for as deferred expenses.

12. If the costs associated with major repairs (for example, replacing walls) are capitalized:

4. They must be recorded as a separate asset.

5. Any remaining costs from the previous building inspection should be written off.

6. The board of directors must be immediately informed of the costs incurred.

13. Cost elements for an investment property are:

i. Purchase price

ii. Legal services.

iii. Tax on the transfer of title to property.

iv. Overhead costs associated with the acquisition of an object.

14. The following costs:

(i) the costs associated with the start-up of the enterprise (except in situations where there is a need to bring the funds to a condition in which they can operate in a mode determined by the company's managers),

(ii) operating losses that occur before the investment property reaches its planned level of exploitation,

(iii) excess production waste, labor costs, other resources involved in the construction or reconstruction of the property should be accounted for as:

7. Unforeseen expenses.

8. Capitalized as fixed assets.

9. Expenses.

15. If payment for an investment property is deferred beyond the crediting period, then any additional payment in excess of the value of the asset will be treated as:

7. Cost of fixed assets.

8. Borrowing costs.

9. Repair and maintenance.

16. Interest income from leased property should be valued:

1. At fair value.

2. According to the current value of the minimum lease payments.

3. By the largest value of 1 and 2.

4. By the smallest value of 1 and 2.

17. When one or more assets are exchanged for a new asset, the new asset is valued:

1. By property replacement cost.

2. At fair value.

3. By salvage value.

18. In the event of an asset exchange where the acquired asset cannot be accurately valued:

1. The value of the transferred asset is used.

2. The salvage value is used.

3. The asset cannot be capitalized.

19. A company's accounting policy may choose to account for investment property either at cost or at revalued cost. The selected method of accounting should be applied:

1. To all fixed assets.

2. To all investment properties.

3. K large objects fixed assets.

20. Income arising from changes in the fair value of investment property should include:

1. To the revaluation reserve.

2. As unforeseen or extraordinary items.

3. In the income statement.

21. Fair value includes:

1. Special financial conditions.

2. Transaction costs arising from the sale.

4. Neither 1 nor 2.

22. Fair value includes:

a. additional value generated by the creation of a portfolio of investment property;

b. quantitative assessment of the effect of synergy (association) of investment property and other assets;

c. legal rights or legal restrictions associated with a particular investment property owner;

d. tax incentives or the tax burden associated with a particular investment property owner.

e. All from 1-4.

f. None of 1-4.

23. The cost of use includes:

1. additional value obtained as a result of the economic effect of acquiring property in different areas (diversification of investments in real estate);

2. quantitative assessment of the effect of synergy (association) of investment property and other assets;

3. legal rights or legal restrictions associated with a particular owner;

4. tax benefits or tax burden associated with a particular owner.

5. All of 1-4.

6. None of 1-4.

24. Fair value takes into account the future capital costs associated with property improvements:

1. Discounting them to their present value.

2. As contingent liabilities.

3. Does not reflect them.

25. When using the cost accounting model, an asset is accounted for:

1. Actual cost.

2. Actual cost less accumulated depreciation.

3. Cost less accumulated depreciation and impairment losses.

26. The transfer of objects into or out of investment property is carried out only in the event of a change in the operation of the object, confirmed by the following events:

1. the beginning of the use of the object by the owner - the transfer from investment property to non-leaseable funds;

2. commencement of preparation for sale - transfer from investment property to reserves;

3. Lease – transfer from non-lease funds to investment property;

4. Commencement of operating lease - transfer from reserves to investment property;

5. Completion of construction or renovation – transfer from funds under construction or renovation to investment property.

6. Any of 1-5.

7. None of 1-5.

27. If a company decides to sell an investment property without redevelopment, that property:

Converted to inventory.

Book value

The carrying amount is the value of the asset shown on the balance sheet.

actual cost is the amount of cash (or cash equivalents) paid and the fair value of any other consideration given to acquire the asset at the time of its acquisition or creation. For share-based payments, see IFRS 2 guidance.

Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (IFRS 13).

investment property

Investment property is property represented by the following types of assets:

1. part of the building

   land and buildings

The owner of the property (or lessee, under a finance lease) receives rent or capital appreciation, or both.

This includes:

Land held to receive long-term capital gains and not to be sold in the short term in the ordinary course of business.

Land, the further use of which is currently not determined. If credit organisation has not decided whether it will use the land as owner-occupied property or for sale in the short term in the ordinary course of business, the land is considered to be held for capital appreciation.

A building owned by a credit institution or held by a credit institution under a finance lease and leased out under one or more operating leases.

A building that is not currently occupied but held for lease under one or more operating leases.

Property that is being built or developed for future use as an investment property.

To investment property not applicable property owned by owner or tenant:

used by the owner or lessee in the production, supply of goods, services or for administrative purposes;

held for sale in the ordinary course of business.

Property objects used for own needs

Own-use property is property used by the owner (owner or lessee under a finance lease) for commercial purposes. They are subject to IAS 16 Property, Plant and Equipment.

Type of property - different types of property are subject to different IFRS accounting methods depending on their current and future use
	Standard number	Name of the standard	Grade
Property used for own needs	IAS 16	fixed assets	Acquisition cost or revalued cost
Property acquired in exchange for assets	IAS 16	fixed assets	Fair value or carrying amount of transferred assets
Investment property	IFRS (IAS) 40	Investment property
Investment property being developed for the purpose of subsequent use as investment property	IFRS (IAS) 40	Investment property	Acquisition cost or fair value
Investment property held for sale without redevelopment (other than under IFRS ( IFRS) 5 - see below).	IFRS(IAS) 40	Investment property	Acquisition cost or fair value
Property held under an operating lease classified as investment property	IFRS (IAS) 40	Investment property	Fair value (accounted for as a finance lease in accordance with IFRS (IAS) 17).
Real estate received under a finance lease	IAS 17	Rent. Used for own needs - IAS 16, investment property - IAS 40.	The lower of the fair value and present value of the minimum lease payments
Real estate received under an operating lease - used for own needs	IAS 17		Lease payments expensed
Property transferred to another party under a finance lease	IAS 17		Accounts receivable equal to net investment for rent
Sale of real estate with a leaseback	IAS 17		As an operating lease or a finance lease, as the case may be
Retail property means property (including investment property) held for sale in the ordinary course of business or constructed and/or redeveloped for that purpose.	IAS 2	Inventories (Property held for sale that meets the criteria in IFRS 5 must be accounted for in accordance with IFRS 5 – see below).	Acquisition cost or net realizable value, whichever is less.
Property held for sale or included in a disposal group	IFRS 5	Long-term assets held for sale and discontinued operations	The lower of carrying amount and fair value less costs to sell
Assets received in repayment of loans (collected collateral)	IFRS 5 IAS 16	Long-term assets held for sale and discontinued operations. Fixed assets (see above Property purchased in exchange for assets)	Fair value less costs to sell or carrying amount of the loan, less any impairment at the date of exchange, whichever is lower (See HSBC (Limited Liability Companies) 2005 Annual Report, page 247)
Future costs of dismantling, liquidation and restoration of the environment	IAS 37	Reserves, contingent liabilities and contingent assets (see also IFRIC 1, IFRIC 5)	Present value of expected expenses using a pre-tax discount rate

Notes on the above table: Note 1: When valuing fixed assets at revalued value positive revaluation reflected in capital. When evaluating investment property at fair value, all changes in fair value are taken into account in income statement. A negative revaluation in both cases is recognized in the income statement (or as a reduction of a previously recognized positive revaluation in equity). Note 2: The carrying amount of property, plant and equipment carried at revalued amounts or at acquisition cost will be reduced by the amount of accumulated depreciation and impairment. (See IAS 36 – Study Guide). The above table shows the different treatment in IFRS reporting of different types of property, depending on their current and future use. Our website contains tutorials for each standard explaining the accounting methodology with examples.

is owner occupied property

A property interest held by a lessee under an operating lease may be classified and accounted for as investment property only if the property would meet the definition of investment property and the lessee measures it at fair value. The lease or lease should be accounted for as a finance lease in accordance with IAS 17.

The fair value model is discussed in detail below.

If the lessee decides to apply the above method of accounting, all leased items (under operating leases) must be accounted for in the same way, i.e. be recognized as investment property and measured at fair value and accounted for as a finance lease in accordance with IAS 17.

An investment property is held to earn a rental income, or to increase the value of capital, or both.

The following are examples of investment properties:

(1) land held for long-term capital appreciation and not for sale in the normal course of business of the company;

(2) land held for possible future commercial use. Land is treated as property intended to increase the value of the company's capital;

EXAMPLE: How should land be accounted for, the future purpose of which is not currently determined? Question: Investment property is considered to be land and structures (in whole or in part) held by the owner or lessee under a financial lease agreement for the purpose of generating income and/or increasing capital. How should land be accounted for, the future purpose of which is not currently determined? Additional Information Bank A is engaged in real estate construction. Bank A buys a piece of land in Moscow through a purchase option purchased several years ago. The purchase price was 10 million and the fair value of the land, according to an independent appraiser, is 23.7 million. Bank A has not yet decided whether it will build on the site for subsequent leasing to a third party or resale, a decision it will make in a subsequent accounting period. In accordance with accounting policy Bank A's investment property should be carried at fair value. Solution The land will be classified as "Reserves". Although the Bank has not yet determined the future use of the site, in any case the property is held either for sale or for construction and resale in the ordinary course of business. Property must be carried at either cost or fair (market) value, whichever is lower. If the Bank had chosen to hold this building on its balance sheet for the purposes of long-term capitalization rather than short-term disposal in the ordinary course of business, then the property would have been classified as Investment Property.

A building owned by the Bank (including on the basis of a financial lease agreement) and leased out through an operating lease.

An unoccupied building intended for operating lease.

Examples of properties that are not investment property and outside the scope of IFRS (IAS) 40 (see table on pages 8 - 9) are given below:

Funds held for sale in the ordinary course of business (including properties under construction or renovation). These funds are accounted for in accordance with IAS 2 Inventories or IFRS 5

Facilities that are built or reconstructed to order for a third party. Accounting is carried out in accordance with IAS 11 Contracts for work.

Funds used for own needs are accounted for in accordance with IAS 16.

Similarly, owner-occupied property includes funds intended for reconstruction and subsequent use for own use, such as housing for company employees (whether employees pay market rent or not), and leased funds subject to write-off or disposal for other reasons. These types of property are accounted for under IAS 16, not IAS 40.

For properties that were previously recognized as investment property but are in the process of being redeveloped, IAS 40 applies.

EXAMPLES investment property You are the owner of the following funds: The plot of land on which you plan to build an office building for rent -. (-. The office building is being refurbished to increase the rent. The office has been leased and will continue to be leased after the refurbishment is completed. During the conversion works, the property will be treated as an investment property. Property under construction for future use as an investment property. Question whether property under construction, which is being built for the purpose of further use for investment purposes, can be accounted for as such on construction phase? How should accounting be changed if management is currently in the process of converting an existing investment property? Additional Information The Bank has recently acquired a land plot for the construction of office buildings. The land and building will be leased to a third party under an operating lease upon completion of construction. Solution This property cannot be accounted for as investment property. IAS 40 intends to exclude property under construction that is subsequently planned for investment purposes. - Management may continue to recognize the property as an investment property during the construction phase. The conversion of investment property for the purpose of further use as investment property is governed by IAS 40. This type of property continues to be recognized as investment property and, depending on the accounting policy adopted by the bank, may be accounted for both at cost and at fair value.

property leased out to another bank under a financial lease.

EXAMPLE Investment property is land and buildings (in whole or in part) held by an owner or lessee under a finance lease to generate income and/or raise capital. How should property held for the indefinite purpose of its further use be classified? Additional Information Company B is an industrial paint supplier in Germany. In 20x3, Company B buys land in a suburb of Frankfurt that has low-value houses and very limited public transport. The government is planning plans to develop this region over a five year period with the aim of creating an industrial park in the area, so the land will increase in value if the government's plans are implemented. Company B's management has not yet made a decision as to the purpose for which the property will be used. Solution Management should classify this property as investment property. Although the decision on the use of the property after the construction of the industrial park has not yet been made, in the medium term the land is held for the purpose of increasing the value. Under IFRS, such land will be treated as held for the purpose of possible appreciation if the owner has not yet determined whether to use this land for personal use or sell it in the near term in the normal course of business. To recognize investment property, management must choose a valuation model between cost and fair value.

Funds owned by the company may be intended simultaneously for:

obtaining rental income or for the purpose of increasing the value of capital,

production of goods, products, works, services, or for administrative purposes.

If objects used for different purposes can be sold or leased separately under a financial lease agreement, then they are kept separately. In addition, this can be done if, by law, this property is divisible for the purpose of sale.

Example Property held for the purpose of earning rental income. Question Property, plant and equipment (fixed assets) are tangible assets that the bank: uses for the production or provision of services, rents to other companies or uses for administrative purposes; And plans to use for more than one period. Certain types of property include partly property used to earn rental income or capital appreciation, and partly used for business, goods and services, or administrative purposes. If these shares can be sold separately (and if this does not contradict the law) or can be leased out under a financial lease agreement, then in this case the bank recognizes these shares of property in different ways. Property will be treated solely as investment property if only a minor proportion of the property is used for business, goods and services, or administrative purposes. How should the condition regarding the divisibility of interests for the purposes of a stand-alone sale or finance lease be interpreted in order to determine whether it is appropriate to account for these interests separately? Additional Information The bank owns an office building. The bank occupies nine of the ten floors for the needs of its head office, while the tenth floor is leased to a third party under an operating lease. Management proposes to account for this property as 'Fixed Assets', as 10% of the total area is leased to third parties on the basis of an operating lease. Solution Management should recognize nine floors as 'Fixed Assets', but the last floor as an investment property. The separate sale and lease clauses under finance leases relate solely to management's discretion and not to the terms of any existing leases. A prerequisite for classifying property as finance leased is a guarantee that the definition of “investment property” given in IAS 40 is not violated. The size of the leased property at 10% is more than an insignificant part of this property. The requirement to separately account for property as "Property" and "investment property" may be applied if the 10th floor can be sold or leased out under finance lease.

If parts of one property cannot be sold separately, such property is recognized as investment property, provided that the part of the property used for own needs is immaterial for the purposes of sale, supply of goods, services or for administrative purposes.

In some cases, the bank may provide additional services to tenants. At the same time, the bank considers leased objects as investment property if the cost of services is insignificant compared to the amount of the rent.

In other cases, the services provided are essential.

In practice, it may be difficult to determine whether ancillary services are significant enough to warrant recognition of property as own use. For example, a hotel owner may outsource all or some of the management of the hotel to a third party, making it difficult to determine materiality.

The determination of property as investment property is based on professional judgment.

The Bank may develop criteria to ensure a prudent approach to the recognition of investment property funds.

There may be a case when the bank is the owner of the property leased to the parent or subsidiary company.

In this case, the property cannot be classified as investment property in the consolidated financial statements as it is not leased out to the Group.

However, for the owning bank, such property is recognized as investment property if it meets the established criteria.

Therefore, in its separate financial statements, the owner accounts for the property as investment property (but not in the consolidated financial statements).

EXAMPLE Property occupied subsidiary Question The bank owns property which it leases and which is occupied by its parent or subsidiary. This property will not be classified as investment property in the consolidated financial statements of both entities, as it is considered owner-occupied from the point of view of the group as a whole. However, from the point of view of the individual bank that owns the property, it will be classified as investment property, subject to this definition. The lessor therefore accounts for the property as investment property in its individual financial statements (IAS 40). Should a bank-owned hotel that was leased to a related company be classified as investment property in the consolidated financial statements? Additional Information Bank A owns the hotel. Company B, which is a subsidiary of Bank A, operates a chain of hotels and receives management fees for these hotels, except for a hotel owned by Bank A. The hotel owned by Bank A is rented out under a financial lease agreement for 2 million units of currency per month for a period of five years. The profit or loss from the operation of the hotel remains with the company "B". The estimated life of this hotel is 40 years. Solution The hotel should be classified as 'property, plant and equipment' in the consolidated financial statements. The hotel is owned and operated by the same group in terms of consolidation, and thus should be recognized as owner-occupied property and used for the purpose of providing goods and services. Bank A recognizes property (subject to operating lease) as investment property in its financial statements. Entity B recognizes the transaction in its financial statements as an operating lease and charges the lease payments to income in the corresponding period.

IAS 40 Investment Property applies in connection with the recognition, valuation and disclosure of investment property that is held for rental income or for capital appreciation, or both.

What is investment property?

Investment property is property held by the owner or lessee under a finance lease to earn rentals, capital appreciation, or both, but not for:

• use in the production or supply of goods or services, or for administrative purposes;
• sales in the ordinary course of business.

Investment property is held to earn rental income or capital appreciation, or both. Therefore, the cash flows generated by investment property are generally unrelated to the other assets of a lending institution.

When classifying a tangible object as investment property, it is necessary to determine the purpose of its use and the type of income received by the owner from the use of this property. True, there are exceptions when the temporary functional use of the property does not allow it to be recognized as an investment property.

Example

The bank decided to purchase the building to rent it out. During the execution of all documents and state registration sales contracts non-residential premises A potential tenant could not be found. In this regard, this building is temporarily used by the bank as an office. Based on the functional use, the building acquired by the bank should be accounted for as a tangible item in accordance with IAS 16 Property, Plant and Equipment. Once the building has been leased out, the property may be recognized as an investment property in the financial statements.

What properties can be classified as investment property?

• Land held to receive long-term capital gains and not to be sold in the short term in the ordinary course of business.
• Land, the further use of which is currently not determined. If an institution has not decided whether it will use the land as owner-occupied property or for short-term disposal in the ordinary course of business, then the land is considered to be held for capital appreciation.
• A building owned by a credit institution or held by a credit institution under a finance lease and leased out under one or more operating leases.
• A building that is not currently occupied but held for lease under one or more operating leases.

What objects cannot be classified as investment property?

• Property held for sale in the ordinary course of business or under construction or development with a view to sale, such as property acquired solely for resale in the near future or for development and resale.
• Real estate under construction or development on behalf of third parties.
• Owner-occupied property occupied by employees of the entity, whether or not they pay market rent, and owner-occupied property held for disposal.
• Property under construction or development for the purpose of further use as investment property. A property transferred to another organization under a financial lease agreement.
• In some cases, part of the facility may be used for rent or capital appreciation, and the other part for the production or supply of goods or services, or for administrative purposes. If such parts of the object can be sold independently of each other (or independently from each other given for financial lease), the credit institution keeps separate records of them, that is, it accounts for these parts of the object separately. If parts of the property cannot be sold separately, the property is considered investment property only if only a minor part of the property is intended for the production or supply of goods or services, or for administrative purposes.

Example

The bank owns the building. 25% of the area of ​​the building is occupied additional office bank, the other part of the building (75%) is leased by the bank third parties. In this case, in accordance with the professional judgment of the specialist of the credit institution, this building should be recognized as an object of investment property, since the share of the area used by the credit institution in its own activities is insignificant. If the shares of the area of ​​the building occupied by the bank and tenants are comparable or equal, then the building is accounted for as an item of property, plant and equipment, investment property is not recognized in this case.

Determining whether a property is eligible for investment property status requires professional judgment. The credit institution independently develops criteria for the consistent use of such professional judgment. In accordance with the requirements of international disclosure standards, a credit institution is obliged to disclose such criteria in cases where the classification of an object is difficult.

Sometimes a lending institution owns real estate that is leased and occupied by a parent institution or another subsidiary. Such property cannot be classified as an investment property in the financial statements because, from the perspective of the group, it is owner-occupied. However, from the point of view of the organization that owns this property, it is an investment property, therefore, in its financial statements, the lessor reports this property as part of investment property.

Example

The bank is part of a large construction holding. One of the buildings was leased by the bank to its parent company. In the financial statements of the bank, this building is recorded as an investment property, in the consolidated financial statements of the construction holding, this building will be accounted for as an object of property, plant and equipment.

The most interesting thing is that the operating lease of a credit institution can also be recognized as an object of investment property. In practice, this situation often occurs. For example, in accordance with the lease agreement, the bank has the right to sublease the leased premises to third parties. So, the premises leased by the bank in the IFRS financial statements will be recognized as investment property.

When can investment property be recognized as an asset?

Investment property may only be recognized as an asset if:

• it is probable that future economic benefits associated with the investment property will flow to the entity;
• the value of this investment property can be reliably assessed.

In accordance with this recognition principle, an institution measures all of its investment property costs at the time they are incurred. These costs include both those initially incurred in connection with the acquisition of investment property and those incurred subsequently in connection with its addition, partial replacement or maintenance.

According to the recognition principle, a credit institution does not recognize in the carrying amount of an investment property the costs of day-to-day maintenance of such property. Instead, such costs are recognized in profit or loss as incurred. The cost of day-to-day maintenance consists primarily of labor and consumables, and may also include the cost of acquiring spare parts. Such expenses are recognized as expenses for the renovation of the property and recognized in the income statement as incurred.

Therefore, the specialist needs to delimit the costs associated with an investment property. Some costs, such as consulting fees for the acquisition of real estate, will be classified as “direct” transaction costs and included in the cost of investment property, while costs associated with maintaining the property in good condition will be treated as maintenance costs and recognized in profit or loss.

Some parts of the funds may be included in the value of investment property as a result of their replacement. For example, the interior walls of a building may be replaced. It should be noted that the difference between the cost of the new and the old structural part will be taken into account in the cost of the investment property.

At what cost is the initial appraisal of investment property made?

Investment property must be initially valued at its cost. Transaction costs must be included in the initial estimate.

The cost of investment property acquired includes the purchase price and any direct costs. Direct costs include, for example, professional legal fees, taxes and other transaction costs.

The cost of investment property is not increased due to the following conditions:

• start-up costs (unless they are necessary to bring the property to a condition suitable for its use in accordance with the intentions of management);
• operating losses before reaching the planned level of rental of premises;
• excess costs of raw materials, labor or other resources incurred in the construction or development of the property.

Example

The bank purchased the building at a market price of RUB 15 million. To bring the building into proper condition, the bank carried out a reconstruction worth 4 million rubles. Thus, the fair value of the building will be 19 million rubles. Please note that the fair value of the building increases only after the reconstruction costs are actually incurred.

If the seller grants an installment payment for an investment property, its value is recognized in the buyer's account at a price that does not include interest for the installment plan. The difference between the total amount paid and the agreed price is recognized over the installment period as interest expense.

The cost of a right in real estate transferred under a lease and classified as investment property shall be recognized at the lower of the fair value of the property and the present value of the minimum lease payments. The amount equivalent to the established valuation of the object is to be recognized as a liability.

One or more investment properties may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The cost of such investment property is measured at fair value unless:

• the exchange operation has no commercial content;
• the fair value of both the asset received and the asset given up cannot be measured reliably. The acquired asset is measured in this manner, even if the entity cannot immediately derecognise the transferred asset. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

How to value an investment property after its recognition?

The method of accounting must be determined by the credit institution independently and fixed in the accounting policy.

A financial institution must choose either the fair value model or the cost model as its accounting policy and must apply that policy to all of its investment property.

Fair value is the amount for which an asset could be exchanged in a transaction between knowledgeable, willing and independent parties.

The definition of fair value involves the simultaneous transfer of the property at the sale and its payment by the buyer. When a property right held by a lessee under an operating lease is classified as investment property, the fair value model should be applied. Gains or losses on changes in the fair value of investment properties must be recognized in profit or loss in the period in which they arise. This accounting procedure is fundamentally different from the alternative accounting procedure for fixed assets at a revalued amount (IFRS 16): according to IFRS 16, such differences are first recognized in the capital accounts of the “Revaluation Fund”, bypassing the income statement.

Example

The book value of the building is 10 million rubles. As a result of the revaluation of the building, which is an object of investment property, the value of the building increased by 6 million rubles. This transaction should be reflected in the financial statements as follows:

Dt"Investment Property"

ct"Other operating income" - 6 million rubles.

Fair value is not an estimated price that is too high or too low as a result of special conditions or circumstances, such as unusual financing arrangements, sale and leaseback transactions, concessional repayment terms or discounts offered by any party to the sale. The market price determined by the “highest price in reasonable time” principle should not take into account the condition of a particular owner, which could reduce the price of the transaction (for example, due to an urgent need for cash or due to legal and tax restrictions imposed on the owner ). On the contrary, it is calculated for the seller, who is interested in the maximum price, and not in the shortest terms of the transaction.

The fair value of an investment property is determined without taking into account the costs associated with its sale.

The fair value of investment property should reflect market conditions at the reporting date. As market conditions may change, the amount presented as fair value may not be accurate or incorrect when measured at a different date. In addition, the determination of fair value involves the exchange of assets and the execution of the sale and purchase agreement at the same time without any change in price that could occur in a transaction between knowledgeable, willing to make such a transaction, independent of each other in the event when the exchange of assets and the execution of the contract occur at different times.

Fair value is best evidenced by current prices in an active market for similar properties that are located in the same location, are in the same condition, and are subject to similar lease terms and other agreements. The objective of the organization is to identify any differences in the nature, location and condition of the property in question, as well as in the terms and conditions relating to its leases and other agreements.

In the absence of valid prices in an active market, a financial institution considers information from various sources, such as:

• current prices in an active market for other types of real estate, in a different condition or in a different territory (or real estate that is subject to different terms of leases or other agreements), adjusted for these differences;
• the most recent prices in less active markets, adjusted for any changes in economic conditions after the date of conclusion of transactions at these prices;
• discounted cash flows based on reliable estimates of future cash flows based on the terms of existing leases and other contracts, as well as (when possible) data from external sources, such as current rental rates for similar properties in the same area. discount factors are used that reflect the degree of uncertainty assessed by the market regarding the amount and timing of cash flows.

In some cases, different sources of information may lead to different estimates of the fair value of investment property. The credit institution independently determines the reasons for these discrepancies in order to obtain the most reliable estimate of fair value.

At the same time, IAS 40 does not insist on the involvement of an independent appraiser to determine the fair value. A lender is encouraged, but not required, to determine the fair value of investment property based on the valuation of an independent appraiser who has a recognized and relevant professional qualification and recent experience in valuing investment property of a similar category and located in the same area.

Please note that “recognised and relevant professional qualifications” refers to the qualifications of internationally recognized appraisal companies, whose reputation has been confirmed by many years of successful work in the market.

In determining the fair value of investment property, a financial institution does not recount assets or liabilities recognized as separate assets or liabilities.

Example

Equipment, such as elevators and air conditioning systems, often form an integral part of the building and are therefore generally included in the fair value of investment properties and are not recognized separately as property, plant and equipment.

If a furnished office is rented out, the fair value of the office would normally include the fair value of the furniture as the rent is taken for the furnished office. When the cost of furniture is included in the fair value of investment property, an entity does not recognize the furniture as a separate asset.

The fair value of investment property does not reflect future capital expenditure on property to renovate or improve it, nor the future economic benefits from such investment.

There is an assumption that a credit institution can reliably measure the fair value of investment property on an ongoing basis. The exception is cases where, at the time of acquisition of the investment property, it becomes clear that the credit institution will not be able to reliably determine the fair value of the investment property. This occurs only when comparable market transactions occur infrequently and alternative fair value measurements are not available. In such cases, the institution must value the investment property using the cost model in accordance with IAS 16 Property, Plant and Equipment, and the institution must apply the chosen method of accounting over the life of the asset, even when the cost can be measured reliably. The procedure for valuation of a specific asset is chosen at its first recognition and cannot be changed. Similarly, if an asset was initially measured at fair value and subsequently it becomes impossible to determine the fair value, then the institution continues to apply the fair value method.

Where a credit institution is forced to measure investment property at cost, it continues to measure all other investment property at fair value. Although a financial institution may use the cost model for one investment property, all other properties must be accounted for using the fair value model.

Example

The credit institution owns a building that is assessed as an investment property for the purposes of preparing IFRS financial statements. Investment property is accounted for at fair value. The Bank decided to purchase a new building with a view to its subsequent lease. The building being acquired by the bank is located in Saratov region. At the time of acquisition of an active real estate market to determine the market price of the building - no. As a result, the bank decided to reflect the new investment property at cost. However, the accounting for the other investment property remains the same.

If an institution previously carried an investment property at fair value, it must continue to carry that property at fair value until disposal, even though there is a reduction in the number of comparable transactions in the market and available market price information.

After initial recognition, an institution that chooses the cost model must measure all of its investment property in accordance with the requirements of the international standard IFRS 16 for this model, that is, at cost less any accumulated depreciation and any accumulated impairment losses.

Is it possible to reclassify an object into the category of investment property?

Reclassification of an object into the category of investment property or exclusion from this category is permitted only when the method of its use is changed, namely:

• the owner begins to occupy the property - the object is transferred from the category of investment property to the category of owner-occupied property;
• development for sale begins - the property is reclassified from investment property to reserves;
• the period during which the owner occupies the property ends - the property is reclassified from owner-occupied property to investment property;
• the property is leased to a third party under an operating lease - the property is transferred from inventory to investment property;
• the stage of construction or development of real estate ends - the object is transferred from the category of real estate under construction or development to the category of investment property.

In accordance with IAS 40, an institution is allowed to reclassify an item from investment property to inventory only when there is a change in its use, as evidenced by the beginning of the development of the item in order to sell it. If a credit institution decides to sell an investment property without developing it, it continues to record this property as investment property until it is derecognised (written off the balance sheet) and does not include it in inventories. Similarly, if a lender begins refurbishment of an existing investment property for further use as investment property, that property retains the status of investment property and is not reclassified to owner-occupied property during the new development stage.

When an investment property carried at fair value is reclassified to owner-occupied property or inventories, the cost of the property for subsequent accounting shall be taken to be its fair value at the date of the change in use.

Until the time when owner-occupied property qualifies as investment property carried at fair value, the credit institution depreciates the property and recognizes any impairment loss. The Bank accounts for any difference between the carrying amount of a property and its fair value as of that date, as well as a revaluation in accordance with the international standard IFRS 16.

Therefore, any decrease in the carrying amount of a property is charged to profit or loss. The amount of reduction within the limits of the increase in the value of this object from the revaluation is written off to the account of the increase in the value of real estate from the revaluation.

Any increase in the carrying amount of the property is accounted for as follows:

• if the increase reverses a previous impairment loss on that property, the increase is taken to profit or loss. The amount of the increase charged to profit or loss for the period shall not exceed the amount necessary to restore the carrying amount to the amount that would have been determined (net of depreciation) if no impairment loss had been recognized for the item;
• the remainder of the increase in book value is credited directly to the equity account as a revaluation surplus. Upon subsequent disposal of an investment property, any revaluation surplus included in equity may be transferred to retained earnings. The transfer of any revaluation surplus to retained earnings is not recognized in profit or loss.

To reclassify an item from inventory to investment property to be carried at fair value, any difference between the item's fair value at that date and its previous carrying amount must be recognized in profit or loss.

The accounting treatment for reclassifying an item from inventory to investment property, which will be carried at fair value, follows the accounting treatment for the sale of inventories.

When does investment property get derecognised?

An investment property is derecognized (i.e., derecognised) on disposal or final decommissioning when the associated economic benefits are no longer expected. Investment property may be disposed of by selling it or transferring it to a finance lease.

Gains or losses arising from the disposal or disposal of investment property should be measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss in the period in which such disposal or disposal occurs.

The consideration receivable on disposal of investment property is initially recognized at fair value. Where payment for an investment property is deferred, the consideration received is initially recognized at the cash equivalent price of the property. The difference between the nominal consideration amount and the cash equivalent price is recognized as interest revenue in accordance with the international standard IFRS 18 using the effective interest method.

Compensation provided by third parties in connection with the impairment, loss or transfer of investment property is recognized in profit or loss when it is receivable. Impairment or loss of investment property, related claims for compensation or compensation from third parties, and any subsequent acquisition or construction of replacement assets are separate economic events and should be accounted for separately.

IFRS 40 prescribes the basic requirements for disclosure of information about investment property in international reporting. According to the standard, a credit institution must disclose:

• what method of accounting it uses - at fair value or at actual cost;
• if it uses the fair value model, whether it classifies and accounts for an operating lease property interest as investment property, and if so, under what conditions;
• if classification is difficult, what criteria does the entity use to distinguish between investment property and funds held for own use and investment property and funds held for sale in the ordinary course of business;
• the methods and assumptions used to determine fair value, including whether fair value was determined on the basis of confirmed market information or taking into account other factors determined by the nature of ownership or the absence of comparable market information;
• whether the fair value of the investment property was determined as a result of a valuation by an independent appraiser with an appropriate professional classification and fresh experience in valuing investment property. If no such assessment has been made, this fact shall also be disclosed;
• amounts recognized in the income statement.

S.B. Tinkelman
CJSC ACG RBS, Deputy Director of the Audit Services Department
on Financial Institutions

E.S. Kazakevich
CJSC ACG RBS, Senior Auditor of the Audit Department of Credit Institutions
Department of audit services

In addition to IAS 16, there are several other standards for accounting for long-term assets and IAS 40 Investment Property is one of them. Consider the basic rules for classifying and accounting for investment property.

Many accountants mistakenly believe that there is only one standard that applies to long-term tangible assets: IAS 16 Property, Plant and Equipment.

While it is true that you need to apply IAS 16 to account for most of your long-term tangible assets, it is not the only standard for accounting for this category of assets.

Consider the main provisions of the standard IAS 40 Investment Property defining what investment property is, its initial and subsequent accounting, fair value model and other issues.

What is IAS 40?

Accounting for IAS 40 Investment Property is identical to accounting for IAS 16 Property, Plant and Equipment except that:

• revaluation results under IAS 40, both positive and negative, are included in profit and loss (and not in the revaluation reserve), and
• there is no depreciation if the revaluation is carried out every year.

What is the purpose of IAS 40?

IAS 40 Investment Property prescribes the accounting and disclosure of information in relation to investment property.

But what is investment property?

Investment property is land, building (or part of it), or both designed for the following specific purposes:

• Receipt rent;
• Cost increase capital; or
• Both. (see paragraph IAS 40.5)

Here it is of great importance purpose of holding the asset . If you hold a building or land for any of the following purposes, then that asset cannot be classified as investment property:

• Production or sale of goods or services,
• administrative purposes or
• Sale within operating activities.

If you use your building or land for the first two purposes, you should apply IAS 16; and IAS 2 Reserves is appropriate when you use a building or land for sale in the course of operations.

Examples of investment properties.

What exactly can be attributed to investment property?

• Land held for resale in the long term at a higher price (as a result of appreciation) or for future uncertain use (i.e. you do not yet know what you will use it for).
  However, if you are buying land and intend to build a production facility on it for your main business some time later, then this land is NOT an investment property.
• A building owned by an entity that is leased out under one or more operating leases. This includes a building that is currently vacant but you plan to rent it out.
• Any property that you actually build for future use as an investment property.
  Be careful here because if you are building a building for any third party, it is NOT investment property and you must apply IAS 11 Construction Contracts or IFRS 15 Revenue from Contracts with buyers".

When to recognize investment property in accounting?

The recognition rules for investment property are basically the same as in IAS 16 for property, plant and equipment, i.e. you recognize investment property as an asset only if two conditions are met:

• It is probable that the future economic benefits associated with this asset will be transferred to the company; and
• The value of an asset can be measured reliably.

How is the initial appraisal of investment property carried out?

Investment property is initially valued at cost, including transaction costs (acquisition costs).

The cost of investment property includes:

• acquisition cost and
• Any costs directly related to the acquisition, such as legal fees or consulting fees, property taxes, etc.

In cost price cannot be included:

• Any startup costs.
  However, if these start-up costs are directly related to the operation of the investment property, you may want to include them. But DO NOT turn on general expenses to launch.
• Operating losses incurred by the company before the property reached its intended level of use, and
• Excess consumption material, labor or other resources that arise during the construction of a property.

If payment for an investment property is delayed, you will need to discount the amount of that payment to present (current) value to establish a current cash value equivalent.

It should also be mentioned that you can actually classify an asset under a finance lease as an investment property, in which case the cost is calculated in accordance with IFRS 16 Leases.

How is the subsequent valuation of investment property carried out?

After initial recognition, you have 2 options for valuing your investment property (IAS paragraph 40.30 et seq.).

Once you have made your choice, you should stick to it and value all your investment properties using the same model (there are actually exceptions to this rule).

Option 1: Measurement using the fair value model.

In accordance with fair value model investment property is measured at fair value at the reporting date. (See IAS paragraph 40.33).

Fair value measurement is defined in IFRS 13 Fair Value Measurement .

The fair value gain or loss is recognized in profit or loss.

Sometimes fair value cannot be measured reliably after initial recognition. It's possible in extremely rare cases , in which case IAS 40 prescribes (see paragraph 53):

• Measure investment property at cost if it is not yet completed and is under construction; or
• Valuate the investment property using the initial cost model, if completed.

Option 2: Estimate by upfront cost model.

The second option for the subsequent valuation of investment property is initial cost model.

This valuation model IAS 40 does not describe it in detail, but refers to IAS 16 Fixed Assets. This means that you need to apply the same methodology as in IAS 16.

How to switch to another investment property appraisal model?

Can you actually move from a cost model to a fair value model or vice versa from a fair value model to a cost model?

The answer is "YES", but only if this change results in financial statements companies will have more reliable information about the financial position and results.

What does this mean in practice?

Moving from a cost model to a fair value model is likely to meet this condition and therefore you may do so if you are confident that you can measure fair value regularly and that the fair value model is a better fit.

However, the opposite change (from a fair value model to an initial cost model) is unlikely to result in a more reliable presentation of assets. Therefore, you should not do this, but if you do, it is rare and for good reasons.

How to transfer assets from and to investment property?

When we talk about transfers ( transfers from category to category) associated with investment property, we mean reclassification. For example, you reclassify a building previously accounted for as property, plant and equipment under IAS 16 to investment property under IAS 40.

A transfer is possible, but only if there is a change in the use of the asset or the purpose of holding the asset, for example (see paragraph IAS 40.57):

• You start leasing property that was previously used as an office building (conversion of previously owner-occupied property to investment property under IAS 16).
• You stop renting out the building and start using it yourself.
• You owned the land for no particular purpose and recently decided to build a residential building on it to sell apartments (transfer from investment property to stocks).

How is the transfer of real estate from category to category reflected in accounting?

This depends on the type of transfer and the chosen accounting policy for the investment property.

If you choose to account for your investment property under the upfront cost model, then there is no problem with transfers, you simply continue to record as you did before.

However, if you chose the fair value model, things are a bit more complicated:

• When you transfer an asset to investment property, then the assessed value of the asset will be its fair value at the date of the transfer. The difference between the asset's carrying amount and fair value is treated and accounted for in the same way as a revaluation under IAS 16.
• When you transfer an asset from an investment property, the value of the asset will also be its fair value at the date of the transfer.

How to derecognise investment property?

The rules for derecognition (i.e. when you can liquidate investment property and derecognise it) in IAS 40 are similar to those in IAS 16.

Disclosure of information on investment property.

IAS 40 Investment Property prescribes a variety of disclosures that must be presented in financial statements, including:

• description of the chosen model,
• how the fair value was measured,
• investment property classification criteria,
• transfers of investment property from category to category during the reporting period.

For more information on disclosures, see paragraphs

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Tomsk State University of Control Systems and Radioelectronics (TUSUR)

CENTER FOR PROFESSIONAL RETRAINING

ABSTRACT

DISCIPLINE: IFRS

TOPIC: IAS 40 Investment Property

Specialty: Management. Finance and credit

Listener:

_____________ / Kuznetsova E.V. /

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Introduction

1. IAS 40 Investment Property

1.1 Classification of investment property

1.2 Recognition and initial assessment

1.3 Subsequent valuation of investment properties

1.4 Disclosure requirements under IAS 40

1.5 Transformation entries upon transition to IFRS

2. Comparative characteristics international financial reporting standard and its Russian counterparts

Conclusion

Bibliography

Introduction

International Financial Reporting Standards (IFRS) dates back to 1971, when the largest and most famous experts in the field of financial accounting it was decided to create a toolkit for the preparation of financial statements, unified and understandable for the world economic community. And in those days there were a lot of skeptics about the work, then still the IASB. It is understandable - how to create a tool for the preparation and presentation of financial statements for the world economic community with its uniqueness and accounting features in a particular country, or even industry. But everything changed dramatically after 2001, when the events related to Enron occurred in the US, and then skeptics for the most part became ardent supporters of the development of a single set of understandable and widely applied standards. Now we can say that more than 100 countries of the world have already switched or are going to switch to IFRS in one way or another. And the statement of US representatives about the possible rejection of US GAAP is a clear confirmation that the weight of IFRS in the global economic environment is constantly increasing. Although there is also enough criticism, the standards are in a constant process of improvement, which cannot irritate both the preparers of financial statements and potential users, since they constantly have to be rebuilt. Yes, just recently, representatives of Islamic countries expressed the opinion that it is desirable for Islamic countries to change IFRS so that they comply with Sharia norms. So there are both internal and external problems.

At the moment, 37 (for comparison, in US GAAP - 159) standards of the old and new platforms have already been issued (IAS (International Accounting Standards) - the old platform, they were released before 2001 - there are 29 of them; IFRS (International Financial Reporting Standards) - new platform, after 2001, there are 8 of them.

The issues of valuation and accounting of fixed assets are the most important when preparing financial statements in accordance with international standards (IFRS), which is caused by the high share of fixed assets in the composition of assets for most Russian organizations. From the correct assessment and recognition of fixed assets, ultimately, the balance sheet of the organization depends to the greatest extent.

In International Financial Reporting Standards, the main standard governing the accounting for property, plant and equipment is IFRS 16 “Property, plant and equipment”. This standard discloses the procedure for recognizing and measuring the cost of fixed assets from the moment of initial costs incurred until the sale or disposal for any other reason, methods of depreciation, disclosure in financial statements.

For the purpose of recognizing property, plant and equipment in the financial statements, the requirements of the following standards must also be taken into account: IFRS 17 “Leases” (“Leases”) and IFRS 40 “Investment Property” (“Investment Property”).

IAS 17 Leases requires an entity to apply the transfer of risks and rewards as a criterion for recognizing a leased item of property, plant and equipment. At the same time, other aspects of accounting for such assets, including depreciation, are determined by the requirements of IFRS 16 Property, Plant and Equipment. investment property financial statements

IAS 40 Investment Property shall be applied by an entity to account for items of property, plant and equipment that are under construction or development and are intended to earn income in the future. IAS 40 also applies to property, plant and equipment that is being redeveloped for the purpose of further use as investment property. An entity using the cost model for investment property in accordance with the requirements of IAS 40 Investment Property will also use the cost method of accounting in accordance with IAS 16 Property, Plant and Equipment. IAS 40 Investment Property also applies to property, plant and equipment that is being remodeled to be used as investment property.

1 . IAS 40 investment property

Investment property is real estate held by an entity (either as an owner or a lessee under a finance lease) for the purpose of leasing or increasing its value, and not for the purpose of use in the production process and for administrative purposes, or for sale.

In Russian practice, fixed assets that are intended solely to be provided by an organization for a fee for temporary possession and use are accounted for as part of profitable investments in material values.

Investment property is recognized as an asset only when it is probable that it will provide future economic benefits and the value of the investment property can be measured reliably.

The cost of an investment property includes the initial acquisition costs and all direct acquisition costs. The value of the constructed investment property is determined at the time the construction or renovation is completed. Until construction is completed, IFRS 16 is applied to account for the facility.

Subsequent valuation of investment property is carried out in one of the following ways:

Fair value accounting - after the initial recognition of objects in the amount of costs for their acquisition, all objects are measured at fair value, which reflects the state of market prices at the reporting date. Gains (losses) from changes in fair value are recognized in the income statement in the period in which they occur.

Acquisition cost accounting - investment property is valued at cost less accumulated depreciation and accumulated impairment losses.

In the course of the business, investment property may need to be reclassified. Transfer of an object to investment property or withdrawal from its composition is carried out only in the event of a change in the method of its operation, confirmed by the following events:

The beginning of the use of the object in production activities - the transfer of the object from investment property to the composition of fixed assets;

Start of preparation for sale - transfer of the object from investment property to reserves;

End of use in production activities - transfer of an object from property, plant and equipment to investment property;

Commencement of an operating lease - transfer of an object from reserves to investment property;

Completion of construction or reconstruction - the transfer of an object from property under construction or reconstruction (fixed assets) to investment property.

When an item carried at fair value is transferred from investment property to other types of assets, the item begins to be accounted for in its new capacity at fair value.

1.1 Classification of investment property

Table 1 - Classification of investment property

Relate to investment property	Does not qualify as investment property
Land held to receive income from capital appreciation	Renewable Natural resources, forest land, etc.
Land, the purpose of which is not defined	Subsoil, minerals, other non-renewable natural resources (except land)
Buildings and facilities (owned or finance leased) under operating lease	Buildings and structures intended for sale, or objects under construction for the same purpose
Unoccupied buildings and structures held for operating lease or capital appreciation	Construction in progress of buildings and structures or their reconstruction on behalf of third parties, or intended for future use as an investment value
Buildings and structures used as investment property under renovation for later use for the same purpose	Buildings (structures) used in production, commercial or management activities; reconstructed for the same purposes, intended for disposal, as well as occupied by employees of the company, regardless of the size of the rent for use

Reclassification of objects of investment value, that is, their inclusion in this category or exclusion from it, is carried out according to the actual purpose of this or that object of the organization's property.

The transfer of an object from investment property to a property for sale is made with the beginning of its reconstruction in preparation for sale. However, if the decision is made to sell the investment property without refurbishment, it continues to be classified as investment property until it is disposed of as a result of the sale.

The object is included in the investment property:

After completion of construction or reconstruction;

After the end of its application in production, management, commercial operations;

After transfer to an operating lease to a third party.

An object is excluded from investment property:

With the beginning of its application in production, management or commercial operations;

With the beginning of the reconstruction as a preparatory pre-sale operation.

1.2 Recognition and Initial Evaluation

Investment property is recognized as an entity's assets as a separate item of accounting when it is reasonably probable that rental payments or capital appreciation will be received in accordance with the requirements for investment property, and the value of the latter can be measured reliably.

Investment property is initially valued at its cost of acquisition or construction, including construction economic way.

The cost of acquiring investment value includes the price of the object and direct transaction costs (legal, consulting services, registration, etc.). Interest for deferred payment is not included in the cost price, it is included in recurring expenses during the term this loan. Objects built by contractors are valued according to the price of the contract.

The cost of a home-built investment property is determined by the sum of all costs as of the completion date of the facility. Costs for items in progress are accounted for like any other costs for capital construction. Separate accounting for investment property begins from the date of completion of construction and acceptance of the object into operation.

The cost of excess consumption of materials and other resources consumed during the construction or reconstruction of facilities is not included in their initial cost. Costs associated with the commissioning of an investment property are not included in its cost, with the exception of those costs that are necessary to bring the property to working condition. But the initial losses associated with temporary difficulties in attracting tenants, other similar losses are written off as expenses of the reporting periods in which they arose.

Subsequent additional expenses are treated as increases in the carrying amount of investment property if they increase the profitability of the investment property.

In all cases where a loss of profitability is reflected in the original price of an item, its recovery through modernization or other subsequent costs should be reflected in an increase in the carrying amount of the item. Other subsequent expenses are not capitalized. They should be written off as expenses of the period in which they arose.

1.3 Subsequent valuation of investment properties

IAS-40 allows to apply for the accounting of objects of investment property: fair value, and its changes to be reflected in profit and loss; acquisition cost, at which investment property is carried on the balance sheet at its residual value, ie less accumulated depreciation and impairment losses. The use of acquisition cost accounting does not preclude the need to disclose the fair value of investment property in the notes to the financial statements.

Table 2 - Main characteristics of investment property accounting models

Index
Initial assessment	Based on actual acquisition costs
Post-evaluation and accounting	All items are carried at fair value, except in exceptional circumstances	All items are carried at cost less accumulated depreciation and accumulated impairment losses (cost model under IFRS 16 Property, Plant and Equipment)
Reflection of changes in fair value	Profit (loss) from changes in fair value is charged to net profit or loss in the period in which they arise, i.е. reflected in the income statement
Depreciation	Depreciation is not charged	Depreciation is charged in the same way as for similar property, plant and equipment under IFRS 16
Exceptions	In exceptional cases, when it is not possible to determine the fair value for investment property, the cost model is used, the salvage value is assumed to be zero
Impairment	The provisions of IAS 36 do not apply (they have already been met because fair value accounting is applied)	Impairment losses are recognized in accordance with IFRS 16 and IFRS 36 Impairment of Assets, included in the income statement
Additional disclosure	In exceptional circumstances where an entity accounts for investment property using the principal accounting method of IFRS 16, additional disclosures are required to explain why fair value cannot be accounted for.	The financial statements must disclose information about fair value or the reasons why it cannot be determined.

This model differs from revaluation accounting, which is commonly used for accounting for tangible assets, in that the excess of the revalued amount over the original carrying amount is recognized in the capital accounts as an increase in the value of property. The application of the fair value model assumes that all changes in value are recognized only in profit and loss.

The difficulties of determining the fair value for many objects of investment value are also obvious. The fair value of investment property should reflect market conditions and actual market and other conditions at the reporting date and not at any other date. Changing market conditions lead to changes and inaccuracies in fair value measurements. For many investment properties, active market prices cannot be relied upon, and tariff factors of rent also come into play.

Each organization undertakes to apply the selected valuation procedure for all investment properties. Often, for objective reasons, it is impossible to provide a fair value assessment of all available items.

Reclassification is measured using one of two models: historical cost or fair value. When measured at cost, any reclassification of investment property does not result in any change in its carrying amount and therefore does not require any accounting for variances. On the contrary, when measuring investment property at fair value, deviations arise that require accounting and reflection in the financial statements.

Investment property is reclassified to property, plant and equipment, inventories or other owner-occupied property categories at fair value, which is recognized as the carrying amount of the items at the time they change their use within the entity.

Investment property objects are disposed of by their sale or financial lease under a leasing agreement. The sale price of an object is determined by its fair value at the date of disposal. When a commercial loan or installment payment is granted, the difference between the actual consideration and the fair value (price) is accounted for separately as interest income received. Arising profits (losses) are reflected in the profit and loss account.

Upon the final decommissioning (writing-off) of an object of investment value, the possible amount of losses is reflected as a loss in the reporting period in which the object is written off.

1.4 Disclosure requirements under IAS 40

Table 3 - Disclosure requirements under IAS 40

Fair value model	Cost accounting model
Reconciliation of the carrying amount of investment property at the beginning and end of the reporting period (comparable information is not required) In exceptional circumstances where an entity accounts for an investment property using the principal accounting method of IFRS 16, the amounts relating to that investment property should be disclosed separately from other items in the reconciliation, and additional disclosures, primarily relating to an explanation of the reasons for the impossibility of accounting for fair value.	Depreciation methods used; Useful lives of assets or depreciation rates used; The total carrying amount and accumulated amortization (together with accumulated impairment losses) at the beginning and end of the reporting period; Reconciliation of the carrying amount of investment property at the beginning and end of the reporting period (comparable information is not required) The fair value of the investment property or indicate the reasons for the inability to determine the fair value of the investment property with a reasonable degree of certainty
Criteria distinguishing between investment property and owner-occupied property, as well as property held for sale in the ordinary course of business; Methods and significant assumptions used in determining the fair value of investment property, The fact that an independent professional appraiser has been engaged to determine the fair value of investment property and the fact that such an appraisal has not been carried out is disclosed in the notes to the financial statements; Indicators reflected in the income statement: Income from the provision of operating leases of investment property; Direct operating expenses relating to investment property from which income was received in the reporting period; Direct operating expenses relating to investment properties that did not generate rental income during the reporting period; The presence and size of restrictions on the possibility of selling investment property; Significant commitments: o under a contract for the acquisition, construction or renovation of investment property, or o to repair, maintain or improve an investment property.

1.5 Transformation entries upon transition to IFRS

When transitioning to IFRS, Russian entities should pay special attention to the presence of objects that meet the criteria for recognition of investments in real estate in accordance with IAS 40 Investments in Real Estate. The use of the fair value model is one of the few tools to increase retained earnings (net profit of the reporting period) of an organization compared to similar indicators under RAP, since real estate prices ( land and buildings) tend to grow.

In the event of the transformation of Russian financial statements into financial statements prepared in accordance with IFRS, the following transformation entries related to the recognition of investment property are possible:

o reclassification entries:

Transfer of property, plant and equipment to investment property (IFRS 40),

Transfer of income-generating investments in tangible assets to property, plant and equipment (IFRS 16) or investment property (IFRS 40);

o records related to the adjustment of accounting methods and valuation of investment property to the fair value model or the cost model, including:

- "withdrawal" of the results of the Russian revaluation, if the objects of investment property were subject to revaluation in accordance with PBU 6/01;

Exclusion of accrued depreciation, inclusion of changes in fair value in the net profit (loss) of the reporting period (if the fair value model is applied);

Entries clarifying useful lives, depreciation methods, residual value estimates reflecting impairment losses under IAS 36 (if the accounting policy provides for the cost model).

2. Comparative characteristics of the international financial reporting standard and its Russian analogues

The equivalent of IFRS 40 Investment Property in Russian legislation Not yet. The closest object of accounting in Russian practice is profitable investments in tangible assets accounted for on account 03 “Profitable investments in tangible assets”.

According to the Chart of Accounts accounting profitable investments in material values ​​are investments of the organization in a part of property, buildings, premises, equipment and other values ​​that have a material form, provided by the organization for a fee for temporary use (temporary possession and use) in order to generate income. Thus, there is a discrepancy between the concepts of investment property (IFRS 40) and profitable investments in tangible assets (see Fig. 1).

Accounting for profitable investments in tangible assets in Russian accounting is carried out in accordance with PBU 6/01 “Accounting for fixed assets”, and generally corresponds to the accounting model at historical cost provided for by IFRS 40. Moreover, if a Russian organization has exercised the right to revaluate profitable investments in tangible assets , then this option will not comply with the fair value model proposed by IFRS 40. It is important to note that, unlike the provisions of international standards, land plots are not subject to revaluation in accordance with Russian legislation (paragraph 43 Guidelines accounting for fixed assets).

Definition		Russian counterparts
First application of the new accounting and financial reporting system	IFRS includes a separate standard on how to apply IFRS for the first time. It provides certain exceptions, includes a number of requirements, including information disclosure. If a company decides to adopt IFRS as a reporting standard, then the first preparation of its IFRS financial statements requires retrospective application of the requirements of all IFRS in force at the reporting date, with some voluntary exceptions, mainly relating to property, plant and equipment and other assets, associations business and accounting pension plans, as well as with a limited number of mandatory exceptions. Comparative data for prior periods should be prepared and presented on the basis of IFRS. Substantially all adjustments arising from the first adjustment of financial data to IFRS need to be adjusted by attributing to retained earnings of the first reporting period presented in IFRS format. Some adjustments may be allocated to goodwill or equity.	Specific rules for the transition to the preparation of financial statements in accordance with RAS or the preparation of such statements for the first time are not established by the regulations.
		Similar to the rules established for fixed assets.
Definition of "investment property"	Investment property (land and buildings) held to earn rental income and/or enhance the value of capital invested in investment property. The definition does not include property used by the company itself and property held for sale.	There is no concept equivalent to the concept of "investment property". In RAS, a separate indicator “Profitable investments in material assets” is allocated, which include investments by the organization in part of the property, buildings, premises, equipment and other material assets provided by the organization for a fee for temporary use (temporary possession and use: rent, rental) with the aim of receiving income.
Initial assessment	Investment property acquired and constructed by the company is accounted for at cost of acquisition. The cost of investment property acquired includes the purchase price and any direct costs such as professional legal fees, property transfer taxes and other transaction costs. Properties constructed by the company must be accounted for as property, plant and equipment until the completion of construction, at which time they are classified as investment property. Leased property under finance or operating leases may also be classified as investment property.	Accounting is carried out in accordance with the rules established for property, plant and equipment (Similar to IFRS, except that gains/losses from cash flow hedges are not included in the cost and the deduction of the amount of government assistance from the cost of the asset is not allowed. There is no requirement to recognize a liability associated with the disposal of an asset, therefore, the cost of disposal of an item of property, plant and equipment is not included in its cost.)
Follow-up evaluation	The Company may use the fair value method and the residual value method for all types of investment property. When fair value is applied, the fair value gain or loss is recognized in the income statement and the carrying amount is not amortized.	Estimated according to the rules established for fixed assets (Partly the same as IFRS. Costs for maintaining an item of fixed assets (technical inspection, maintenance), as well as for current and overhaul included in current expenses. The costs of modernization and reconstruction of an item of fixed assets may increase the initial cost of the item if, as a result of modernization and reconstruction, the originally accepted normative performance indicators (useful life, capacity, quality of use, etc.) of the item of fixed assets are improved (increased). If one object has several parts that have different useful lives and are accounted for separately, the replacement of each such part is accounted for as disposal and acquisition of an independent inventory item.)
	For changes in the use of investment property, there is detailed guidance on how to subsequently classify it. Investment property held for sale is reclassified as inventory; investment property used by the company itself - in the category of "fixed assets".	Not applicable.
Periodicity and rules for revaluation	The fair value of investment property should reflect market conditions and circumstances at the balance sheet date. The standard does not require the involvement of an independent and qualified assessor, but it is encouraged. Revaluations should be carried out with sufficient regularity so that the carrying amount does not differ materially from fair value.	Similar to IFRS

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Conclusion

The discrepancies between the Russian accounting system and IFRS lead to significant differences between reporting prepared in the Russian Federation and in Western countries. At the same time, reporting prepared according to international standards allows you to get a more accurate picture of the state of affairs in the company. Therefore, investors and financial institutions(banks, stock exchanges, investment and leasing companies) are used to evaluate financial condition Russian organizations financial statements prepared in accordance with IFRS.

The purpose of reforming the accounting system is to bring the national accounting system in line with the requirements market economy and international financial reporting standards.

Reform objectives:

Form a system of accounting and reporting standards that ensure useful information users, primarily investors;

Ensure the linkage of the accounting reform in the Russian Federation with the main trends in the harmonization of standards at the international level;

Provide methodological assistance to organizations in understanding and implementing the reformed accounting model.

Thus, the state is interested in such a transition, since it is interested in the influx of foreign investment, increasing the transparency of the accounting of Russian companies and the compliance of accounting standards with the requirements of a market economy.

The transition of Russian companies to IFRS is important for investors, company management, and the state.

State interest. Entities in countries that apply IFRS have the opportunity to obtain cash for more preferential terms and in shorter timeframes. Generally accepted financial reporting standards are necessary for countries interested in attracting foreign capital. It will help revive Russian economy and increase budget revenues.

Interest of investors and owners of companies. In the absence of a single financial statements international investors interested in preserving capital and reducing investment risks are forced to conduct additional analytical studies aimed at identifying the true financial position specific enterprises or companies, as a result of which capital becomes more expensive. The introduction of IFRS in the Russian Federation will reduce the cost of reporting transformation and thus reduce costs.

Interest of enterprise management. The management of an enterprise using IFRS receives reports that reflect reality as objectively as possible and on the basis of which it is possible to make informed management decisions.

Bibliography

1. tax code Russian Federation;

2. Paly V.F. International Accounting and Financial Reporting Standards: Textbook. - 3rd ed., Rev. and additional - M.: INFRA-M, 2008. - 512 p. - (Higher education);

3. Similarities and Differences - Comparison of International Financial Reporting Standards with US Generally Accepted Accounting Rules and Russian rules Accounting - May 2007

4. Umrikhin S.A. International Financial Reporting Standards: Russian practice applications / S. A. Umrikhin, Yu.V. Ilyin. - M.: GrossMedia: ROSBUKH, 2007. - 432 p. - (Library of the journal "Russian Accountant");

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