Dear Members

Please advice me on the following issue
If the comany has a barren free hold land but intends to construct it in the near future and use for leasing it to get the rental income. please suggest should i treat this barren land as of now under IAS 16 or under IAS 40.
Please advice.
Best regards


It is IAS 40 to use in this case. The free hold land should be valued at cost (interest may be capitalized if there are loans contracted specifically to acquire this land) and disclosed as held for future development (with a estimated term when construction will start, and lease will be in use etc).

 

 


Paragraph 8 of IAS 40 on Investment Property has the following:

The following are examples of investment property:

(a)        land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.

(b)        land held for a currently undetermined future use.  (If an entity has not determined that it will use the land as owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded as held for capital appreciation.)

Now that the land has been held for no other use other than investment property then it should be classified as investement property.

Even ignoring the future intentions with regards to the future use of the property it would still meet the definition of Investment Property.

Regards,