IAS 40 Investment Property IAS 40 Investment Property St d Student - - PowerPoint PPT Presentation
IAS 40 Investment Property IAS 40 Investment Property St d Student t Names deleted Company LOGO Accounting 440 Accounting 440 Agenda 1. What is IAS 40 2. Difference between IFRS and US GAAP 3 E 3. Examples in Calculations l i C l l
Company
To earn
THE LESSEE (under Finance Lease) THE OWNER TEXT ) TEXT
Held by
Land held for long term capital appreciation
use
Property held for use in the production or supply of goods or services or for administrative purposes
di f b i i
the process of construction of development for such sale (IAS 2 Inventories);
property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts);
Property, Plant and Equipment), i l di t h ld f f t including property held for future use as owner-occupied property
http://www.iasplus.com/standard/ias40.htm
RECOGNITION MEASUREMENT DISCLOSURE AS AN ASSET FAIR VALUE COST METHODS, AS AN ASSET (IAS 40.16) FAIR VALUE or COST (IAS 40.20 and 33-65) ASSUMPTIONS PROFIT/LOSS AMNT (IAS 40.75-79)
http://www.iasplus.com/dttpubs/0703ifrsusgaap.pdf
COST MODEL FAIR VALUE MODEL COST MODEL FAIR VALUE MODEL One method must be adopted for all of the entity’s investment property One method must be adopted for all of the entity s investment property. Change is permitted only if it results in a more appropriate presentation. Highly unlikely to change from fair value method to cost model.
With FAIR VALUE → Gain or Loss
Otherwise upfront payment → Prepayment
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http://www.iasplus.com/dttpubs/0703ifrsusgaap.pdf
which is the amount for which the property can be exchanged in that period.
for property/plant/equipment
IFRS
T ' B I B l Sh t T ' B I B l Sh t
US.GAAP
Tew's Burger Inc, Balance Sheet Tew's Burger Inc, Balance Sheet Assets
C urrent Assets
Year 1 Year 2 Assets Year 1 Year 2
C ash 50 50 C ash 50 50 I 50 50 I 50 50 Inventory 50 50 Inventory 50 50 ‐‐‐ ‐‐‐ Investment Property ‐ Land 100 105 Non‐current asset ‐ Land 100 100 Total Inventory Property 100 105 Total Non‐current Assets 100 100 T l A
200 205 T
l A
200 200
Total Assets
200 205 Total Assets 200 200 Stockholder's Equity Stockholder's Equity
No Entry
C ommon stock 51 51 C ommon stock 51 51 R etained E arning 50 55 R etained E arning 50 50 Total E quity
101 106 Total E quity 101 101
Year 2 Year 1
105 100
If loss on land is significant, the book value of the land will be the fair market value
Year 2 Year 1
If loss on land is significant, the book value of the land will be the fair market value (Stice, Stice. Intermediate Accounting-Ch11)
100 100
Year 1
Building held for rental 50 K Salvage Value 0 K
IFRS
Tew's Burger Inc, Balance Sheet Tew's Burger Inc, Balance Sheet
US.GAAP
Expected life 25 yr Annual Depreciation 2 K
Assets Year 1 Year 2 Assets Year 1 Year 2
Cash 50 50 Cash 50 50 Inventory 50 50 Inventory 50 50 ‐‐‐ ‐‐‐ Investment Property‐Building 50 55 Non‐current Asset ‐ Building 50 50 Accumulated Depreciation ‐2 ‐4.21 Accumulated Depreciation ‐2 ‐4 Total Investment Property 48 50.79 Total Non‐current Assets 48 46 Total Assets
148 150.79 Total Assets 148 146 Stockholder's Equity Stockholder's Equity
Common stock 51 51 Common stock 51 51
Year 2
No Entry
Retained Earining 50 52.79 Retained Earining 50 50 Total Equity
101 103.79 Total Equity 101 101
Year 2
Historical cost 50 K Book Value 48 K Appreciation 5 K Fair Market Value 53 K Historical cost 50 K Book Value 48 K Annual Depreciation 2 K Salvage Value 0 K Expected life 24 yr Annual Depreciation 2.21 K
IFRS (Straight-line method)
p y g
2.21
2.21
U.S GAAP (Straight-line method)
Tew's Burger Inc. Income Statement
Year 2 Year 1
IFRS Sales 150 150 COGS 50 50 Gross 100 100 Depreciation Expense
2 21
2 Depreciation Expense
‐2 Gain
5
Net Income
102.79 98
Tew's Burger Inc. Income Statement
Year 2 Year 1
US GAAP Sales 150 150 COGS 50 50 Gross 100 100 Depreciation Expense ‐2 ‐2 Depreciation Expense 2 2 Net Income
98 98
Efficiency
Efficiency (Asset Turnover Ratio)
Year 1 = 150/200 = 0.75 Year 1 150/200 = 150/200 = 0.75 0.75 Year 2 = 150/205 = 0.73 = 150/200 = 0.75
Year 1 = 100/200 = 0.50 Year 1 100/200 = 100/200 = 0.50 0.50 Year 2 = 105/205 = = 100/200 = 0.51 0 50 = 100/200 = 0.50
Flexible and has more options PROS p. Flexible and has more options Most relevant and transparent view of financial performance of InvProp. Good reflection of the market conditions at the balance sheet Upward revaluation makes ROI look better p CONS
doesn’t enhance comparability No active market for investment property–doesn’t enhance comparability
Inability to measure fair value reliably: uncertain, variable and costly Market for property is not liquid enough R iti f li d i /l i th i t t t Recognition of unrealized gains/losses in the income statement:
Causes a pre-assumption that unrealized gain is available for
distribution as dividends
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Company