MFRS 140

INVESTMENT PROPERTY
 LEARNING OUTCOME
AT THE END OF THIS TOPIC,YOU SHOULD BE ABLE TO:
 Define and give examples of investment properties
 Explain the initial and subsequent measurement of investment
properties
 Discuss the accounting treatments – recognition and
measurement – for transfers to or from investment properties
 Show the disclosure requirements for reclassification of owner
occupied properties to investment properties

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 INVESTMENT PROPERTY

 Property – (LAND or BUILDING - or part of building - or

both) held to earn rentals or for capital appreciation or both,
NOT FOR:
use in the production or supply of goods or services or for
administrative purposes, or
sale in the ordinary course of business.

 CARS FOR RENTAL AN IP??? NO

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 INVESTMENT PROPERTY - EXAMPLES

Held for long-term capital appreciation rather than for

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short-term sale in the ordinary course of business

2 Held for a currently undetermined future use.

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Being constructed or developed for future use as
investment property

Owned by the entity and leased out under one or

4 more operating leases

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 NON INVESTMENT PROPERTY - EXAMPLES

 Owner-occupied property, including

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

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 PROPERTIES WITH DUAL USES
An entity might use part of building for own used and hold other part
of the same building for rental and capital appreciation purposes.

 If property can be sold or leased out separately

 Part rented out is classified as investment property
(MFRS140)
 Part occupied is classified as PPE (MFRS116)

 If property cannot be sold or leased out separately

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

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 TRY THIS!!
For each situation below, state whether items can be classified as
investment property under MFRS 140 Investment Property.
1) Mega Bhd, a construction company owns plant and machinery for
rental.
2) Jaya Bhd owns a multi-storey building and 90% was rented out.
3) JCD Bhd bought a 10 acre of land for underdetermined future
use.

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PROPERTIES WITH ANCILLARY SERVICES

 If the services component is insignificant to the

arrangement of the business as a whole
 Asset is classified as investment property (MFRS140)

 If the services component is significant to the

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

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 EXCHANGE TRANSACTION
 When an investment property is acquired in exchange for non-
monetary assets, in whole or in part, the commercial substance should
be considered.
 The cost of such an investment property is measured at fair
value unless:
a. the exchange transaction lacks commercial substance; or
b. the fair value of neither the asset received nor the asset given up
is reliably measurable.
 If (despite lack of market transactions) the entity is able to determine
reliably the fair value of either the asset received or the asset given
up, then the fair value of the asset given up is taken as
cost of the asset received, unless the fair value of the asset received is
more clearly evident.
 If the fair value of the asset acquired is not measured at fair value
then its cost is measured at the carrying amount of the
asset given up.
 PROPERTIES WITHIN A GROUP
 Property owned by a group and occupied by the parent or
subsidiary (known as intra company rental):

Classified as
Classified as PPE investment
in the property in the
consolidated financial
financial statements of the
statements company that
owns property

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 RECOGNITION
 “Process of capturing, for inclusion in the statement of
financial position, or the statement(s) of financial
performance”
Relevant information
about the assets
First Second
Faithful
• Need to • Their
meet the recognition representation about
definition provides the asset
of users of
Investment financial
Properties statement Information that
with: result in benefits
exceeding the cost
of providing
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information
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 INITIAL MEASUREMENT
 Initially measured at its cost

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

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

recognized in its carrying amount

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 INITIAL MEASUREMENT
 Purchased investment property
 Costs comprises purchase price, and any directly
attributable expenditure. Directly attributable
expenditure includes professional fees for legal
services, property transfer taxes and other transaction
costs.
 Property held under finance lease
 The lower of fair value and present value of minimum
payments
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 EXAMPLE
On 1 January 20X1, Citra Bhd acquired an investment property
in the form of building for RM22 millions. The purchase
agreement provided for settlement in full on 31 December
20X1 (before trade discount factor of 10%). RM1 million
transfer duty and RM40,000 legal fees were incurred and paid
during January 20X1 in respect of the acquisition of this
property. Rates for the year ended 31 December 20X1 of
RM200,000 were paid on 30 November 20X1.

Required:
Measure the cost to be recognised by Citra Bhd upon initial recognition
of the building as investment property
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 SOLUTION
Costs Reason and Calculation RM

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

cash cost RM2,200,000)
Transfer duty Directly attributable 1,000,000
costs
Legal fees Directly attributable 40,000
costs
Rates Operating cost: expensed -
off-excluded

Total 20,840,000

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

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

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

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

SOPL for the period in which it arises.

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 FAIR VALUE MODEL
 A willing buyer is motivated, but not compelled to buy at any
price

 A willing seller is not over-eager, not forced to sell at any price,

not one who is prepared to hold out for a price not considered
reasonable in current market conditions

 Arms length transaction is a transaction between unrelated

parties, acting independently, with no special relationship

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 FAIR VALUE MODEL
 An entity must ensure that assets and liabilities are not double-
counted:
 Equipments – lifts or air conditioning – included in the fair value is not
recognized separately as property, plant and equipment

 Furniture included in the fair value of an office building is not recognized

separately as property, plant and equipment

 Prepaid or accrued operating lease income – accounted as separate

liability or asset – is excluded from the fair value

 Any recognized lease liability is added back to determine the carrying

amount

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 INABILITY TO DETERMINE FAIR VALUE RELIABLY

 If the fair value of an investment property under construction is

not reliably determinable, the cost model should be used until
either its fair value is reliably determinable or construction is
completed (whichever is earlier).
 If the fair value is not reliably determinable even after construction is
completed, the property shall be measured based on the cost model in
MFRS116

 If the fair value of an investment property is not reliably

determinable on a continuing basis, the cost model in MFRS116
should be used.
 The residual value is assumed zero
 The cost model is applied until its disposal
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 Example: (COST MODEL)

1 July 2018 – Gabby Bhd acquired a building with an

estimated life of 30 years with an undetermined
future use for RM3,000,000. The fair value on 30
June 2019 and 30 June 2020 is RM2,700,000 and
RM2,600,000 respectively. The company adopt cost
model for its subsequent measurement.

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 Questions
Required: ( Cost model)
1. Explain the accounting treatment on 1 July 2018, 30 June 2019
and 30 June 2020
2. Show the journal entries on 1 July 2018, 30 June 2019 and 30
June 2020.
3. Prepare SOPL (extract) FYE 30 June 2019 and 30 June 2020
4. Prepare SOFP (extract) as at 30 June 2019 and 30 June 2020

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 EXAMPLE: COST MODEL
Accounting treatment:

1. Building is classified as investment property and is measured at the initial cost of

RM3,000,000 on acquisition on 1 July 2018 because it is for undetermined future
use.
2. Since the company adopt cost model, the investment property will be measured at
cost less accumulated depreciation less accumulated impairment loss.
3. On 30 June 2019, depreciation charge of RM100,000 (RM3,000,000/30) will be
recognised as expenses in SOPL. Carrying amount of RM2,900,000 (RM3,000,000-
RM100,000) will be recorded in SOFP.
4. On 30 June 2020, depreciation charge of RM100,000 will be recognised as expenses
in SOPL. Carrying amount of RM2,800,000 (RM2,900,000-100,000) will be
recorded in SOFP.
5. The fair value changes have been ignored since the cost model was adopted.

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 EXAMPLE: COST MODEL
Journal entries:
1 July 2018 Dr. Investment property RM3,000,000
Cr. Cash RM3,000,000

30 June 2019 Dr. SOPL - Depreciation RM 100,000

Cr. Investment property RM 100,000

30 June 2020 Dr. SOPL - Depreciation RM 100,000

Cr. Investment property RM 100,000

Statement of Profit & Loss Income FYE 30 June

2019 2020
Depreciation expense RM 100,000 RM 100,000

Statement of Financial Position as at 30 June

2019 2020
2 Investment property RM 2,900,000 RM2,800,000
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 EXAMPLE 1 – FV MODEL
Nyumee Bhd is involved in the manufacturing of biscuits and
confectioneries. On 1 January 2012, the company acquired a building in
Pulau Langkawi at a price of RM7,000,000. Legal and transfer fees of
RM500,000 and RM20,000 were incurred respectively. The estimated
useful life of the building is 50 years. The building was rented out
immediately to Trex Bhd for RM388,000 per month, who used the
building as a hotel.
The fair values of the building on 31 December 2012 and 31 December
2013 were RM7,990,000 and RM7,828,000 respectively. Nyumee Bhd
adopts the revaluation model and the fair value model for the
subsequent measurement of its property, plant and equipment and
investment property respectively
Discuss the accounting treatment of the building for years ended 31
December 2012 and 2013.

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 ACCOUNTING TREATMENT (FAIR VALUE MODEL)

1. The building is classified as an investment property on 1 January 2012 at the

initial cost of RM7,520,000(7m+500k+20k) because the building was rented
out to other party.
2. Since Nyumee Bhd has adopted the fair value model for its investment
properties, changes in their fair value will be recognized in the
statement of profit and loss.
3. An increase in the fair value of RM470,000(7,990,000 -7,520,000)on 31
December 2012 shall be credited to the statement of profit or loss. The
amount investment property of RM7,990,000 will be recorded in SOFP.
4. While a decrease in the fair value of RM162,000(7,828,000-7,990,000)
on 31 December 2013 shall be written off in the statement of profit or loss. The
amount investment property of RM7,828,000 will be recorded in SOFP.
5. The building shall not be depreciated.

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 JOURNAL ENTRIES (FAIR VALUE MODEL)

2012 Dr Investment property 7,520,000

Cr Cash/ Payable 7,520,000

Dr Investment property 470,000

Cr SOPL – Change in FV 470,000

2013 Dr SOPL – Change in FV 162,000

Cr Investment property 162,000

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 TRANSFERS TO OR FROM INVESTMENT
PROPERTY
 Transfers are made when there is a CHANGE IN USE

Transfers Proof Of Change In Use

MFRS140 IP to MFRS116 PPE Commencement of owner-

occupation

MFRS116 PPE to MFRS140 IP End of owner occupation

MFRS140 IP to MFRS102 Commencement of development

Inventories with a view to sale
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TRANSFERS

Basically, assets like building and land may undergo changes in

usage.
For example, a building used for administrative may later be
rented out.
MFRS 140 MFRS 116

Accounting Treatment:
At the date of transfer/change, the value use will be the fair
value. Subsequently the treatment will be according to
MFRS116.
 REFER TO EXAMPLE 1A

In 2014, the managements of Nyumee Bhd made a

decision to diversify into the hotel industry. They gave
Trex Bhd six months’ notice to vacate the building and
eventually on 1 July 2014, the company began its hotel
operations using the building. On this date, the fair value
of the building was determined to be RM7,920,000.

Required:
Advise Nyumee Bhd on the accounting treatment of the transfer of the investment
property to owner-occupied property on 1 July 2014 in accordance with MFRS
140 Investment Property

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 SOLUTION
Under MFRS 140 Investment Property, on the date of the transfer
on 1 July 2014 , the owner occupied property will be
measured at the fair value of the investment property of
RM7,920,000 . The difference between the fair value at
transfer date and the previous carrying amount of RM92,000
(7,920,000 – 7,828,000) is recognized in the statement of
profit or loss. From here onwards, the building shall be
depreciated over its remaining useful life of 47.5 years.

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EXAMPLE 2

Kay El Bhd purchased a property costing RM9,000,000 on 1

January 2011. This property was rented out to OMG Bhd at an
annual rental of RM 250,000. The rental has been negotiated at
arm’s length.

On 1 January 2012, the property was vacated by OMG Bhd and

Kay El decided to use the property as administration office. The
fair value of the property at that time was RM10,500,000.

Assuming Kay El Bhd adopts the fair value model in its measurement
subsequent to the initial recognition, show the relevant journal entry.
 SOLUTION
Date Transaction Dr Cr
1 Jan 2011 Dr Investment property 9,000,000
Cr Cash/payable 9,000,000

31 Dec 2011 Dr Investment property 1,500,000

Cr SOPL 1,500,000

1 Jan 2012 Dr PPE 10,500,000

Cr Investment property 10,500,000
MFRS 116 MFRS 140

Accounting treatment.

At the date of transfer/change, the value use will be the fair

value. The fair value will be compared with the carrying value
(cost – accumulated depreciation) at the date of transfer. Any
surplus is to be accounted in revaluation reserve and
deficit to the SOPL. Subsequently the treatment will be
according to MFRS140.
EXAMPLE

On 31.12.2012, Boleh Bhd vacated a building in Shah

Alam which has been its administrative centre and
move to a new building in Putrajaya. The former
building has a carrying value of RM5 million and is
now rented out to 4 tenants. The fair value of the said
building is RM7 millions and is treated as investment
property under MFRS 140. On 31.12.2013, the
property has a market value of RM7.5 millions.
 SOLUTION

At the date of transfer 31.12.2012

Dr Building (IP) 7,000,000
Cr Building (PPE) 5,000,000
Cr Building Revaluation Reserves 2,000,000

At 31.12.2013
Dr Building (IP) 500,000
Cr SOPL 500,000
 DISPOSALS OF INVESTMENT PROPERTIES
On disposal by sale or
by entering into finance
lease
IP is eliminated
from the SOFP
when:
When permanently
withdrawn from use

 Difference between the net proceeds and the carrying amount - gain
or loss – is recognized in profit or loss

 Compensation from 3rd parties for IPs that have been impaired, lost
or given up are recognized in the income statement when receivable.
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 DISCLOSURE
 An entity shall disclose:
 Whether the fair value model or cost model has been applied
 Fair value model- reconciliation of carrying amount at beginning
and end of period
 Cost model – depreciation method, useful lives, gross carrying
amount and accumulated depreciation at beginning and end of
period
 Criteria it uses to distinguish investment property from owner
occupied property
 Methods and assumptions used to determine fair value
 Rental income, operating expenses and changes in fair value
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