The IAS 16 cost model

Learning objectives

• Apply the cost model (depreciation and impairment under IAS 16) to investment property.L2, L3
• Calculate, from the case data, the amount relating to the cost model under IAS 16 and justify the basis of calculation.L2, L3
• Record the entry relating to the cost model under IAS 16 and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §56Cost model: after initial recognition, (a) IFRS 5 if the property meets the criteria to be classified as held for sale; (b) IFRS 16 if the property is held by a lessee as a right-of-use asset and is not held for sale; (c) IAS 16 (cost model: depreciation and impairment) in all other cases.

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

3 questions

• An entity has chosen the cost model for its investment property. What does it do after initial recognition?L2
• Cormane applies the cost model to its investment property. Original cost: {cost}. Accumulated depreciation at the reporting date: {accumulated_depreciation}. Accumulated impairment losses: {accumulated_impairment}. Calculate the carrying amount of the property at the reporting date.L2
• Delmane applies the cost model to a building held as investment property whose depreciable amount is {depreciable_amount}, depreciated on a straight-line basis over 30 years (case assumption). The charge for the period is {annual_depreciation}. Record the depreciation entry.L3