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robertaz.
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November 20, 2018 at 2:57 pm #485326
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When is a property a “Non-current asset held for resale” and when is it classed as “investment property” (talking when it it is not leased/rented out, but held it hopes of appreciation?) Thank you
November 21, 2018 at 8:44 pm #485430
Hi,
IAS 40 applies to land/buildings that are held to earn rentals or held with a view to selling once they’ve appreciated in value.
IFRS 5 applies to PPE that was previously used in the daily running of the business but is now no longer required and is to be sold, so is now no longer classified as PPE but as a NCA-HFS.
Hope that clears it up a bit.
Thanks
November 29, 2018 at 3:05 pm #486432
Makes sense, thank you.
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The distinction between IFRS 5 and IAS 40 is crucial in accounting for properties held for different purposes, and I'd be happy to elaborate. IFRS 5 deals with assets held for sale, particularly those that were once used in business operations but are now intended for disposal. These assets, no longer part of Property, Plant, and Equipment (PPE), are reclassified as Non-Current Assets Held for Sale (NCA-HFS). The standard provides guidelines on their measurement, presentation, and disclosure in financial statements.
On the other hand, IAS 40 primarily concerns properties held for investment, either for rental income or capital appreciation. Properties under IAS 40 are classified as Investment Property and are reported at fair value, with changes recognized in profit or loss.
In the scenario you provided, the distinction hinges on the intent behind holding the property. If the property is held for resale or appreciation, IAS 40 would likely apply, considering it an investment property. However, if the property was previously used in business operations and is now being held for sale, IFRS 5 would be more appropriate, leading to its classification as a Non-Current Asset Held for Sale.
Understanding these standards is pivotal in ensuring accurate financial reporting, particularly in determining how properties are classified and accounted for based on their intended use.
