From investment property to inventory

Learning objectives

• Determine the deemed cost of a property transferred to inventories on commencement of development with a view to sale.L3, L4
• Calculate, from the case data, the amount relating to a transfer from investment property to inventories and justify the basis of calculation.L3, L4
• Record the entry relating to a transfer from investment property to inventories 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.
• IAS 40 §64The treatment of a transfer from inventories to investment property carried at fair value (para. 63) is consistent with the treatment of sales of inventories.
• IAS 40 §65Completion of the construction or development of a self-constructed investment property carried at fair value: the difference between the fair value at that date 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

• A management accountant comments on the transfer of an investment property measured at fair value to inventories. Which of the statements is incorrect?L3
• Ravane measures at fair value an investment property made up of 24 identical apartments. It begins developing the building with a view to selling the apartments (change in use evidenced, case data). On that date, fair value is {fair_value_per_apartment} per apartment; the carrying amount at the last reporting date was {previous_carrying_amount}. What is the deemed cost of the inventory?L3
• Sorvane applies the fair value model. It begins developing an investment property with a view to selling it (change in use evidenced, case data). The latest change in fair value is already recognised; the fair value at the date of the change is {fair_value_at_change}. Record the transfer entry to inventory.L4
• Talvane measures its investment property at fair value. Its board decides to sell a leased property after refurbishment, but no work has started and the property is still leased (case data). The controller proposes an immediate transfer to inventory. In three to five sentences, justify whether this transfer is possible and at what value it would be made.L4