Investments backing linked liabilities

Learning objectives

• Identify the case of property backing liabilities that pay a return linked directly to its fair value (choice by category).L2, L3

Normative references

• IAS 40 §32AChoice by category: the entity may choose either the fair value model or the cost model for all investment property backing liabilities that pay a return linked directly to the fair value of, or returns from, specified assets including that investment property, and make an independent choice for all other investment property.
• IAS 40 §32BSome entities operate an investment fund that provides investors with benefits determined by units, or issue insurance contracts with direct participation features whose underlying items include investment property (for paras. 32A and 32B, investment contracts with discretionary participation features are included). The choice in para. 32A does not allow the property held by the fund (or the underlying items) to be measured partly at cost and partly at fair value; the defined terms are those of IFRS 17.
• IAS 40 §32CWhen the entity chooses different models for the two categories in para. 32A, sales of investment property between pools of assets measured using different models are recognised at fair value and the cumulative change in fair value is recognised in profit or loss; a property sold from a fair value pool into a cost pool takes its fair value at the date of sale as deemed cost.

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

1 question

• An entity that applies the cost model to the property backing liabilities whose return is linked to that property's fair value must also apply the cost model to all its other investment property.L3