From owner-occupied to investment property

Learning objectives

• Account for a change from owner-occupied property to investment property carried at fair value (IAS 16 up to that date, then the difference treated as a revaluation).L3, L4
• Calculate, from the case data, the amount relating to a transfer from owner-occupied property to investment property and justify the basis of calculation.L3, L4
• Record the entry relating to a transfer from owner-occupied property 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.
• 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

• Owner-occupied property becomes an investment property that will be measured at fair value. What treatment applies up to the date of the change in use, and on that date?L3
• On 1 April, Itérane stops occupying a building and starts leasing it to third parties (change in use, case data). It measures its investment property at fair value. Up to that date, the building has been depreciated under IAS 16: its carrying amount is {previous_carrying_amount}. Its fair value at the date of the change in use is {fair_value_at_change}. Calculate the difference to be treated as a revaluation under IAS 16.L3
• Kalvane stops occupying a building and leases it to third parties (change in use evidenced, case data). It measures its investment property at fair value. Carrying amount of the building under IAS 16 at that date: {previous_carrying_amount}; fair value: {fair_value_at_change}. Assume no earlier decrease of this building was recognised in profit or loss (case convention). Record the transfer entry.L4
• Lunvane stops occupying a building, carrying amount 4,000,000 under IAS 16, and leases it to third parties (change in use evidenced). It measures its investment property at fair value, which is 3,700,000 at that date. The building has never been revalued and no revaluation surplus exists (case data). How is the 300,000 difference treated?L4