Property held under a lease

Learning objectives

• Account for a right-of-use asset held as investment property (boundary with IFRS 16).L2, L3
• Calculate, from the case data, the amount relating to a property interest held under a lease and justify the basis of calculation.L2, L3
• Record the entry relating to a property interest held under a lease and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §5Definitions: carrying amount, cost, fair value, investment property (land or a building held to earn rentals or for capital appreciation, including through a right-of-use asset) and owner-occupied property (held for use in the production or supply of goods or services or for administrative purposes).

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

3 questions

• The initial measurement of a right-of-use asset held as investment property remains governed by the original wording of IAS 40 on finance leases under IAS 17.L2
• Nerval leases a floor of a building for ten years and sub-leases it to third parties to earn rentals. The right-of-use asset meets the definition of investment property (case assumption). Which initial treatment is consistent?L3
• Orvane leases a floor for two years: rent of {payment_year_1} at the end of the first year and {payment_year_2} at the end of the second. The annual discount rate is {rate} (case data). For teaching simplicity, assume no other payment (no variable rent, no initial direct costs). Calculate the present value of the rents, the basis for the initial measurement of the right-of-use asset.L3