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AASB 116 compared to AASB 140

5 June 2010 8,756 views 21 Comments

If a company has the ability to choose between accounting for property under AASB 116 Property Plant and Equipment and AASB 140 Investment Property, in which circumstances (if any) do you believe the company would favour using AASB 116 over AASB 140 (or vice versa). Why?

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21 Comments »

  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
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  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
    via Twitoaster

  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
    via Twitoaster

  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
    via Twitoaster

  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
    via Twitoaster

  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
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  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
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  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
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  • ifrslist
    ifrslist said:

    [New Post] AASB 116 compared to AASB 140 – http://www.ifrslist.com/2010/06/aasb-116...
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  • IFRS List.com: AASB 116 compared to AASB 140 — Accounting Blog said:

    [...] Vaccountancy wrote an interesting post today. Here’s a quick excerptIf a company has the ability to choose between baccounting/b for property under AASB 116 Property Plant and Equipment and AASB 140 Investment Property, in which circumstances (if any) do you believe the company would favour using AASB 116 … [...]

  • hbjaipur said:

    Dear

    If other revenue (ancillary services) are significant % of total revenue then IP could be classfied as PPE.

    hb

  • patriciawalters said:

    Companies do NOT have a free choice between applying IAS 16 and IAS 40 (or Australian equivalents).

    Investment property is defined as land or buildings (in whole or part) held for rental or capital appreciation or both. PPE on the other hand is used for production or administrative purposes (referred to as “owner-occupied”). Facts and circumstances determine to which asset class a particular land/building belongs. For example, a company might occupy a floor in a building held for rental and so the building would be allocated to PPE and Investment Property.

    IFRSs also provide requirements when an item is transferred between these asset classes when the facts and circumstances change.

    Investment property is one of the minimum line items to be shown on the balance sheet, although most companies include it in the same note disclosure as PPE.

    The real difference in accounting between these two asset classes only comes if the company does not choose the cost model for subsequent measurement. PPE is carried at revalued amount and Investment Property at fair value.

    I also believe it’s important to note that investment property companies requested the IASC provide the fair value model. It wasn’t forced on them.

    Regards
    Patricia

  • bobolaulau
    bobolaulau said:

    @ifrslist
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  • Soviet said:

    http://rel” rel=”nofollow”>Хм…..…

    Ссылки как то непонятно отображаются…

  • patriciawalters said:

    In response to hbjaipur:

    Land and/or building is EITHER PPE or Investment Property, depending upon the facts and circumstances. If the company provides services to the tenants of the building sufficient to make the building “owner-occupied”, that is, the company’s business is to actually manage the building, then the building cannot be classified as investment property, the company is REQUIRED to classify the building as PPE.

    A hotel is a good example of the potential difference. If I own a hotel and manage it myself, the hotel is PPE. If I hire a third-party to manage the hotel and receive a fee (“rent”), then the hotel would be investment property.

    Classification as either PPE or IP is not a free choice.

    Patricia

  • stevenlau said:

    hi Patricia

    assumption:IF the company (i.e airline company) has a ABILITY to choose between AASB 116 and AASB 140.

    based on the assumption, what impact will the AASB 116 have on Financial statement? (or vice versa)? and also if the the company (i.e airline company)lease the asset (i.e plane) to another company, what impact will the AASB 116 have on lessee and lessor’s Financial statement?

    regard

    chris

  • patriciawalters said:

    Chris:

    Companies do not have the ability to choose between IAS 16 and 40. I won’t comment on the effects on financial statements of an invalid assumption because, if I do comment, I risk having those comments taken out of context and I would be trying to explain myself.

    That said, only land and/buildings can be classified as investment property. So, you question about aircraft whether leased or owned is irrelevant. IAS 40 is not applied regardless of facts and circumstances.

    Assuming the leased aircraft is a finance lease for the lessee, it would be accounted for under IAS 17. IAS 17 requires leased assets classified as finance leases to be depreciated/amortized consistent with the depreciation for similar owned assets accounted for in accordance with IAS 16.

    I do have a recommendation for you in trying to see the differences in application of IAS 16 and IAS 40. Look at the financial statements of Homburg Invest, Inc. Homburg is a Canadian investment property company that has been preparing full sets of financial statements under IFRS and Canadian GAAP. In their IFRS financial statements, land and/building which meet the definition of investment property are held at fair value with changes in fair value reported in income. This is not an option under Canadian GAAP, so the same property is carried at cost less accumulated depreciation. By comparing the two sets of statements, you can see the difference. Homburg has not early adopted IFRS for Canadian regulatory purposes, so you can compare the two sets of statements for several years.

    For example in its December 31, 2009, financial statements:
    (CAD$ in thousands)

    Net loss under IFRS iss (449,262) (IAS 40, fair value model)
    Net loss under Canadian GAAP is (247,690)

    The carrying value of:
    Investment property under IFRS is 2,739,415
    Investment property under Canadian GAAP is 2,714,594

    Obviously, looking at the differences in these and other accounts (investment properties under development) are essential to understanding why these amounts are what they are at a point in time. I haven’t yet done that.

    If Homburg had chosen to carry its investment property at cost less accumulated depreciation, the only difference between the two sets of statements would be a separate line item on the balance sheet for investment property.

    You can download these statements as well as prior year statements on the website:

    http://www.homburginvest.com/investor_relations/financial_information

    Leased assets: Measurement of leased assets by lessees and lessors is scoped out of IAS 17 and into IAS 40. In all other respects, IAS 17 applies to leased assets. Keep in mind that IAS 17 will be revised shortly.

    Does this help?

    Patricia

  • patriciawalters said:

    I meant to say that we need to look at the differences in the various accounts over several years to understand better the long term effects of using the IAS 16 cost model versus the IAS 40 fair value model.

    Patricia

  • stevenlau said:

    hi Patricia

    thanks for your reply

    cheers

    chris

  • Accounting and Auditing - Topic Research, Trends and Surveys said:

    [...] and secretariats. Through the sharing of opinions and … market research, surveys and trends IFRS List.com: AASB 116 compared to AASB 140 Vaccountancy wrote an interesting post today. Here’s a quick excerptIf a company has the [...]

  • stl1231 said:

    I agree with Patricia’s comments; however, another major difference is if you fall within the scope of IAS 40 and you elect the cost model, you must disclose fair value information.

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