From inventory to investment property

Learning objectives

• Account for a transfer from inventories to investment property carried at fair value (difference in profit or loss).L3, L4
• Calculate, from the case data, the amount relating to a transfer from inventories to investment property and justify the basis of calculation.L3, L4
• Record the entry relating to a transfer from inventories to investment property and state its effect on the financial statements.L3, L4

Normative references

• IAS 40 §60Transfer from investment property carried at fair value to owner-occupied property or inventories: the deemed cost is the fair value at the date of change in use.
• IAS 40 §61Transfers to investment property carried at fair value: IAS 16 (IFRS 16 for a right-of-use asset) applies up to the date of change in use; any difference at that date between the carrying amount and the fair value is treated as a revaluation under IAS 16 (see also para. 62).
• IAS 40 §62Transfer from owner-occupied property to investment property carried at fair value: depreciation and impairment up to that date, then the difference is treated as a revaluation under IAS 16 (a decrease in profit or loss unless there is an existing revaluation surplus; an increase in profit or loss to the extent it reverses a previous impairment loss, then in other comprehensive income); the surplus may be transferred to retained earnings without passing through profit or loss.
• IAS 40 §63Transfer from inventories to investment property carried at fair value: the difference between the fair value and the previous carrying amount is recognised in profit or loss.

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

4 questions

• On the transfer of inventory to investment property measured at fair value, the difference between fair value and the previous carrying amount is recognised in other comprehensive income.L3
• Marlane, a developer, held apartments in inventory for sale, recorded at {previous_carrying_amount}. For lack of buyers, it leases them to third parties (change in use evidenced, case data). It measures its investment property at fair value, which is {fair_value_at_change} at the date of the change. What gain does it recognise in profit or loss for the transfer?L3
• Norvane transfers to investment property a building it held as inventory, after signing a lease with a tenant (change in use evidenced, case data). Carrying amount of inventory: {previous_carrying_amount}; fair value at the date of the change: {fair_value_at_change}. It applies the fair value model. Record the transfer entry.L3
• An accounting director comments on the transfer of inventory to an investment property measured at fair value. Which of the statements is incorrect?L4