Cost model and right-of-use assets

Learning objectives

• Apply the cost model to a right-of-use asset held as investment property.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.

2 questions

• An entity applies the cost model and holds a right-of-use asset meeting the definition of investment property. What must it do after initial recognition?L2
• Fluvane holds a right-of-use asset over a property leased to third parties, recognised as investment property under the cost model for 20,000 at inception, with a two-year lease. For teaching simplicity, assume straight-line depreciation over the lease term, with no residual value or impairment. What is the carrying amount of the right at the end of the first year?L3