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48. In exceptional
cases, there is clear evidence when an entity first acquires
an investment property (or when an existing property first
becomes investment property following the completion of
construction or development, or after a change in use) that
the variability in the range of reasonable fair value
estimates will be so great, and the probabilities of the
various outcomes so difficult to assess, that the usefulness
of a single estimate of fair value is negated. This may
indicate that the fair value of the property will not be
reliably determinable on a continuing basis (see paragraph
53).
49. Fair value
differs from value in use, as defined in IAS 36 Impairment
of Assets. Fair value reflects the knowledge and
estimates of knowledgeable, willing buyers and sellers. In
contrast, value in use reflects the entity’s estimates,
including the effects of factors that may be specific to the
entity and not applicable to entities in general. For example,
fair value does not reflect any of the following factors to
the extent that they would not be generally available to
knowledgeable, willing buyers and sellers:
(a) additional value
derived from the creation of a portfolio of properties in
different locations;
(b) synergies
between investment property and other assets;
(c) legal rights or
legal restrictions that are specific only to the current
owner; and
(d) tax benefits or
tax burdens that are specific to the current owner.
50. In determining
the fair value of investment property, an entity does not
double-count assets or liabilities that are recognised as
separate assets or liabilities. For example:
(a) equipment such
as lifts or air-conditioning is often an integral part of a
building and is generally included in the fair value of the
investment property, rather than recognised separately as
property, plant and equipment.
(b) if an office is
leased on a furnished basis, the fair value of the office
generally includes the fair value of the furniture, because
the rental income relates to the furnished office. When
furniture is included in the fair value of investment
property, an entity does not recognise that furniture as a
separate asset.
(c) the fair value
of investment property excludes prepaid or accrued operating
lease income, because the entity recognises it as a separate
liability or asset.
(d) the fair value
of investment property held under a lease reflects expected
cash flows (including contingent rent that is expected to
become payable). Accordingly, if a valuation obtained for a
property is net of all payments expected to be made, it will
be necessary to add back any recognised lease liability, to
arrive at the fair value of the investment property for
accounting purposes.
51. The fair value
of investment property does not reflect future capital
expenditure that will improve or enhance the property and does
not reflect the related future benefits from this future
expenditure.
52. In some cases,
an entity expects that the present value of its payments
relating to an investment property (other than payments
relating to recognised liabilities) will exceed the present
value of the related cash receipts. An entity applies IAS 37 Provisions,
Contingent Liabilities and Contingent Assets to
determine whether to recognise a liability and, if so, how to
measure it.
Inability to
Determine Fair Value Reliably
53. There is a
rebuttable presumption that an entity can reliably determine
the fair value of an investment property on a continuing
basis. However, in exceptional cases, there is clear
evidence when an entity first acquires an
investment property (or when an existing property
first becomes investment property following the completion
of construction or development, or after a change in
use) that the fair value of the investment
property is not reliably determinable on a
continuing basis. This arises when, and only when, comparable
market transactions are infrequent and alternative
reliable estimates of fair value (for example,
based on discounted cash flow projections) are
not available. In such cases, an entity shall measure
that investment property using the cost model in IAS 16.
The residual value of the investment property shall be
assumed to be zero. The entity shall apply IAS
16 until disposal of the investment property.
54. In the
exceptional cases when an entity is compelled, for the reason
given in the previous paragraph, to measure an investment
property using the cost model in accordance with IAS 16, it
measures all its other investment property at fair value. In
these cases, although an entity may use the cost model for one
investment property, the entity shall continue to account for
each of the remaining properties using the fair value model.
55. If an entity has
previously measured an investment property at fair value,
it shall continue to measure the property at fair value until
disposal (or until the property becomes owner-occupied
property or the entity begins to develop the
property for subsequent sale in the ordinary
course of business) even if comparable market transactions
become less frequent or market prices become less
readily available.
Cost Model
56.
After initial recognition, an entity that chooses the
cost model shall measure all of its investment
properties in
accordance with IAS 16’s requirements for that model
other than those that meet the criteria to be classified
as held for sale (or are included in a disposal group
that is classified as held for sale) in accordance with
IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations.Investment properties that meet the criteria
to be classified as held for sale (or are included in a
disposal group that is classified as held for sale)
shall
be measured in accordance with IFRS 5.
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