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pool in which the fair value model is used
• Existence and amounts of restrictions on the realizability of investment property; or for the remittance of income and proceeds on disposal
• Contractual obligations to purchase, construct, or develop investment property or for repairs, maintenance, or enhancements
Fair Value Model
If an entity applies the fair value model, it shall also disclose a reconciliation of the opening and closing carrying values of investment property, showing
• Additions, showing separately, acquisitions, subsequent expenditure, and additions through business combinations
• Assets classified as held for sale under IFRS 5
• Net gains or losses from fair value adjustments
• Net exchange differences arising on translation of financial statements in a different reporting currency
• Transfers to and from inventories and owner-occupied property
• Other changes
When a valuation for an investment property is adjusted to avoid double counting of assets such as equipment that may be recognized separately, a reconciliation of
the adjustments shall be disclosed.
When fair value cannot be measured reliably and the asset is stated in accordance with IAS 16, such assets shall be disclosed separately from those at fair value. In
addition to the movement disclosures set out previously, disclosures shall be made of the
• Description of properties stated in accordance with IAS 16
• Explanation as to why fair value cannot be reliably measured
• Range of estimates, if possible, within which the fair value is highly likely to fall
• Disposals of investment property not carried at fair value
For investment properties measured under the cost model, an entity shall disclose
Cost Model
• Depreciation methods used
• Useful lives or depreciation rates used
• A reconciliation of the opening and closing gross carrying amounts and the accumulated depreciation and impairment losses, showing
• Additions, showing separately, acquisitions, subsequent expenditure, and additions through business combinations
• Assets classified as held for sale under IFRS 5
• Impairment losses recognized and reversed
• Net exchange differences
• Transfers to and from inventories and owner-occupied property
• Other changes
• The fair value of investment property and, if fair value cannot be reliably measured
• Explanation as to why fair value cannot be reliably measured
• Range of estimates, if possible, within which the fair value is highly likely to fall
• Disposals of investment property not carried at fair value
PRACTICAL INSIGHT
Even if an entity measures an investment property under the cost model it is still required by IAS 40 to disclose the “fair value” of such an investment
property measured at cost. (Such a disclosure is usually made in the notes to the financial statements). This may not appear to be an unusual requirement
for disclosure of fair value in these days when fair value accounting seems to be the order of the day, but from the perspective of entities that are required to
make such a disclosure such a requirement of IAS 40 is definitely being construed as an impractical and an expensive choice to implement. In other words,
while IAS 40 is apparently giving an entity a free choice of measuring investment properties using either the cost model or the fair value model, this
requirement to disclose fair value (despite allowing an entity to measure the investment property under the cost model) compels it to undertake an exercise
to fair value an investment property that it is carrying at cost in its books of account. In practice, this mandatory disclosure under IAS 40 is seen by some
as a really onerous requirement of the standard since it makes it incumbent upon an entity to undertake a fair valuation exercise even in a case when an
entity is carrying an investment property at cost in its books of accounts (as allowed by the standard as a free choice) and only for the purposes of satisfying
this disclosure requirement the entity has to undertake the same kind of a fair valuation exercise that it would otherwise have gone through had it chosen to
measure this investment property under the fair value model.
Compare this to the recommended disclosure requirement under IAS 16, paragraph 79, in the case of property, plant, and equipment carried under the
cost model wherein that standard does not make it mandatory but “encourages” the entity to disclose the fair value of such a property, plant, and
equipment only in a situation when the fair value is materially different from the asset’s carrying value.
In practice, undertaking a fair valuation of an investment property on an annual basis, usually by an independent expert, is a very expensive exercise and
thus entities are seen to prefer using the cost model over the fair value model. But if the standard makes it a compulsory requirement that an entity also
disclose the fair value in a case wherein it measures the investment property using the cost model, such a disclosure requirement, in a way, amounts to
taking away the free choice of allowing an entity to use either the cost model or the fair value model. In practice, therefore, such a mandatory disclosure
requirement is construed by some as the proverbial case of the fine print taking away what the large print apparently allowed.