What is Investment Property Accounting?
Investment property is land or buildings held to earn rentals, for capital appreciation or both, rather than for use in production or sale in the ordinary course of business. Under IAS 40, entities can choose between the cost model and the fair value model to measure investment property after recognition.
How It Works
- Classify property as investment property based on its use.
- Choose between the cost model and the fair value model and apply it to all investment property.
- Under fair value, remeasure to fair value at each reporting date with changes in profit or loss.
- Under cost, depreciate and test for impairment.
Saudi Context
Saudi REITs and real estate companies frequently choose the fair value model so investors can see the latest market value of the portfolio on the balance sheet.
Example
A SAR 100 million office building held for rental income that rises to SAR 110 million fair value at year-end produces a SAR 10 million gain in profit or loss under the fair value model.