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WorksheetsMFRS 140 INVESTMENT PROPERTY CHALLENGE - By Yusnaliza Hamid
Total questions: 20
Worksheet time: 14mins
Under MFRS 140, Investment property is property that can be: land, or a building, or part of a building, or both land and building that is held by the owner (or by the lessee, under a finance lease):
to earn rent
or for capital appreciation, or both
rather than for:
use in the production or supply of goods or services or for administrative purposes; or sale in the ordinary course of business.
rather than for use in the production or supply of goods or services or for administrative purposes
rather than for sale in the ordinary course of business.
The following are NOT EXAMPLES of investment property are outside the scope of MFRS 140: [Para 40.5 and 40.9]
owner-occupied property, including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal
property that is being constructed or developed for future use as investment property
property leased to another entity under a finance lease
property being constructed or developed on behalf of third parties
property held for use in the production or supply of goods or services or for administrative purpose AND property held for sale in the ordinary course of business or in the process of construction of development for such sale
Examples of investment property:
vacant building held to be leased out under an operating lease
building leased out under an operating lease
property held for use in the production or supply of goods or services or for administrative purposes
land held for long-term capital appreciation land or for a currently undetermined future use
property that is being constructed or developed for future use as investment property
IB Bhd has a property with MIXED USE.The owner uses part of the property for its own use, and part to earn rentals or for capital appreciation. If the portions can be sold or leased out separately:
the part that is owner occupied is a property, plant and equipment (PPE)
all portions are PPE
the part that is rented out is an investment property (IP)
they are accounted for separately..
all portions are IP
The owner uses part of the property for its own use, and part to earn rentals or for capital appreciation. If the portions cannot be sold or leased out separately:
the whole property is accounted as property, plant and equipment as per MFRS 116 only if the owner-occupied portion is significant
the part that is owner occupied is accounted as property, plant and equipment (PPE) as per MFRS 116
the part that is rented out is accounted as an investment property (IP) as per MFRS 140
the whole property is accounted as investment property as per MFRS 140 only if the owner-occupied portion is insignificant
If the entity provides ANCILLARY SERVICES to the occupants of a property held by the entity, the appropriateness of classification as investment property is determined by the significance of the services provided:
If those services are a relatively insignificant component of the arrangement as a whole (for instance, the building owner supplies security and maintenance services to the lessees), then the entity may treat the property as investment property under MFRS 140
Where the services provided are more significant (such as in the case of an owner-managed hotel), the property should be classified as owner-occupied and recognised under MFRS 116
It is an owner-occupied property i
It is an investment property
(i)An investment property shall be measured initially at its cost.
(ii)Transaction costs shall be included in the initial measurement.
(ii) The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure.
(i), (ii) and (iii) are correct
(i) and (iii) are correct
(i) and (ii) are correct
(ii) and (iii) are correct
Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy
True
False
MFRS 140 permits entities to choose between:
(i) a fair value model, and
(ii) a cost model.;
(iii) one or both model shall be adopted for all of an entity's investment property.
(iv) one model must be adopted for all of an entity's investment property.
(i), (ii) and (iii) are correct
(i) and (ii) are correct
(i), (ii) and (iv) are correct
(ii) and (iii) are correct
Under Fair Value model
(i)Investment property is remeasured at fair value, which 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.
(ii) Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.
(iii)Gains or losses arising from changes in the fair value of investment property shall be recognised as equity movement in the asset revaluation reserve and must be presented under other comprehensive income
(i), (ii) and (iii) are correct
(i) and (ii) are correct
(i) and (iii) are correct
(i) is correct
OMB Bhd Bank owns an office building at Jalan Intan, Ipoh, Perak. The bank occupies 18 of the 20 floors as its head office, while the 2 remaining floors is leased out separately to a third party under an operating lease. The directors propose that the property be treated entirely as PPE under MFRS 116 because the portion leased to a third party is leased under an operating lease and only represents 10% of the property.
Explain the accounting treatment under MFRS 140.
The company shall follow the director's proposal. The whole 20 floors, being owner occupied should be recognised as property, pant and equipment (owner occupied property) as per MFRS 116 as the 2 floors leased out under an operating lease and is insignificant as that only represents 10% of the property.
The 18 floors, being owner occupied should be recognised as PPE (owner occupied property) as per MFRS 116.
The remaining 2 floors, leased out under opertaing lease should be accounted as investment property as per MFRS 140.
The requirement to account separately for the property, plant and equipment (PPE) and investment property elements must be followed
What is the subsequent measurement available under MFRS140 Investment Property?
Revaluation model
Cost model
Fair value model
Market Value model
Kurung Bhd measured its investment propery using fair value model. Carrying value and fair value of the building on 1 January 20x6 were RM1.4 million and RM1.6 million respectively. The difference of RM0,2 million should be treated as:
Fair value gain in the Statement of Profit or Loss
Surplus on revaluation in Asset Revaluation Reserve
Gain on disposal in Statement of Profit or Loss
Deferred gain in Statement of Financial Position
On 1 January 20x9, Anabel Bhd vacated a building that it occupied as its administrative office and rented it out to several tenants. According to Paragraph 57 of MFRS 140, this is a transfer or change in use from:
Property, plant and equipment (MFRS 116) to Investment Property (MFRS 140)
Investment Property (MFRS 140) to Property, plant and equipment (MFRS 116)
Property, plant and equipment (MFRS 116) to Inventories (MFRS 102)
Investment Property (MFRS 140) to Inventories (MFRS 102)
After initial recognition, investment property may be accounted for in accordance with the COST MODEL as set out in MFRS 116 Property, Plant and Equipment . Therefore,
Any changes in fair value is ignored
The carrying amount of investment property will be at cost less subsequent accumulated depreciation and less subsequent accumulated impairment losses.
The carrying amount of investment property will be cost less accumulated depreciation and less accumulated impairment losses.
The carrying amount of investment property will be shown under Non Current Asset
Changes in fair value is recognised as surplus or deficits on evaluation
The standard MFRS 140 Investment Property says that when you transfer an asset from owner-occupied property to the investment property, you need to apply MFRS 116 until the date of transfer.
YES
NO
NOT SURE
For a TRANSFER of Owner occupied property (adopting Revaluation Model) to Investment Property (adopting Fair Value Model). the accounting treatment BEFORE and AT THE DATE OF TRANSFER are as follows:
Up to the date of transfer, you need to depreciate the property and recognize any impairment losses if applicable.
At the date of transfer, you need to treat any difference between the carrying value of property under MFRS 116 and its fair value – which is the new deemed carrying amount under MFRS 140 – as a revaluation in accordance with MFRS 116.
At the date of transfer, you need to treat any difference between the carrying value of property under MFRS 116 and its fair value – which is the new deemed carrying amount under MFRS 140 – as a fair value gain or loss in accordance with MFRS 140.
For a TRANSFER of Owner occupied property (adopting Revaluation Model) to Investment Property (adopting Fair Value Model). the accounting treatment AFTER the date of transfer are as follows:
We will continue apply fair value model to this investment property, so subsequently, any change in fair value is recognized in profit or loss.
When we derecognize the property at sale or disposal then only we will transfer the remaining revaluation surplus to retained earnings as realised.
The revaluation surplus is transferred via profit or loss – itnot to transfer within equity.
The investment property will be derecognized from the financial statements, under following situations:
Upon disposal of Investment property or
When no economic benefits are available either by use of property or from its sale
Any compensation recoverable from any third parties will be recognized in statement profit or loss, in respect of investment property which was impaired or lost, in the period in which it becomes receivable.
Any gain or loss, resulting from the disposal of investment property will be charged to statement of profit or loss in the related period.
(1) Any rental earnings from investment property is recognised in statement of profit or loss as other income and (2) Any operating expense such as repair & maintenance relating to it will be expensed off in profit or loss.
Both (1) and (2) are true
Both (1) and (2) are false
(1) is true and (2) is false
(1) is false and (2) is true
All are incorrect
