Judgement on the significance of services

Learning objectives

• Justify in writing the judgement on the significance of the services, of management contracts and of the operating risk retained.L3, L4

Normative references

• IAS 40 §11Ancillary services provided to occupants: if these services are a relatively insignificant component of the arrangement as a whole, the property remains investment property.
• IAS 40 §12Where the services provided to occupants are significant, the property is not investment property: a hotel owned and managed by the entity, whose services to guests are significant to the arrangement as a whole, is owner-occupied property.
• IAS 40 §13Difficulty in assessing whether services are significant (hotel management contracts, owner as passive investor or as operator): a judgement based on the facts.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• An analyst comments on the classification of hotels under management contracts. Which of the analyst's statements is incorrect?L3
• Two similar office buildings are leased. For the first, the security services included represent 3% of the value of the arrangement; for the second, the concierge, catering and meeting rooms run by the entity represent 35% of the income from the property (case data). An analyst classified them in the same way. In three to five sentences, explain why the same classification is not automatic.L4