IAS 40 Investment Property: Complete Guide

Updated March 3, 2026 by Vicky Sarin

IAS 40 Investment Property

IAS 40 Investment Property is the IFRS standard issued by the International Accounting Standards Board (IASB) that governs how entities recognise, measure, and transfer property held to earn rental income or for capital appreciation β€” not for owner use or sale in the ordinary course of business. Under IAS 40, entities choose between the fair value model (gains and losses go to profit or loss) or the cost model, and must apply strict transfer rules when property changes its purpose.

πŸ’‘ Key Takeaways

  • Investment property is held for rental income or capital appreciation β€” not owner use or sale in the ordinary course of business.
  • Two measurement models: Fair Value Model (FV changes go to profit or loss, NOT OCI) and Cost Model (IAS 16 rules apply).
  • Transfers between categories require evidence of a genuine change of use β€” management intent alone is not sufficient (IAS 40.57).
  • When PPE is transferred to investment property under the fair value model, revaluation gains go to OCI; but all subsequent fair value changes after transfer go to profit or loss.
  • A right-of-use asset (IFRS 16) can qualify as investment property under IAS 40 β€” a key SBR exam interaction.
  • Once classified as held for sale (IFRS 5), IAS 40 measurement stops β€” the asset is measured at the lower of carrying amount and fair value less costs to sell.
  • The #1 exam mistake: confusing which model routes gains to OCI vs profit or loss. Under IAS 40 fair value model, ALL fair value changes go to P&L.

What Is Investment Property under IAS 40?

Investment property is land or a building β€” or part of a building β€” held to earn rental income, for capital appreciation, or both, rather than for use in production, supply of goods/services, administration, or sale in the ordinary course of business. IAS 40 governs its accounting from recognition through to derecognition.

The definition sounds straightforward, but the classification decision is where many candidates β€” and practitioners β€” go wrong. The key question is why the entity holds the property, not just what it does with it.

What Counts as Investment Property?

  • Land held for long-term capital appreciation (not for near-term sale in ordinary course of business)
  • Land held for currently undetermined future use
  • A building owned by the entity and leased out under one or more operating leases
  • A building currently vacant but held to be leased out under an operating lease
  • Property being constructed or developed for future use as investment property
  • A right-of-use asset held by a lessee that meets the IAS 40 definition (post-IFRS 16)

What Does NOT Count as Investment Property?

  • Owner-occupied property β€” used in production, supply of goods/services, or administration (β†’ IAS 16)
  • Property held for sale in the ordinary course of business (β†’ IAS 2)
  • Property being constructed or developed on behalf of third parties (β†’ IFRS 15)
  • Property held for sale as part of a business combination within 12 months (β†’ IFRS 5)

What About Mixed-Use Property?

When a property is partly owner-occupied and partly held for investment, IAS 40 requires split accounting if the portions can be sold (or leased out on a finance lease) separately. If the portions cannot be sold separately, the whole property is classified based on its predominant use. This is an area of judgment that frequently appears in SBR scenarios.

"IAS 40 is essentially IAS 16 β€” except that fair value changes go to profit or loss (not OCI) and there is no depreciation under the fair value model. That single distinction explains most SBR exam marks."

How Is Investment Property Initially Recognised and Measured?

Investment property is recognised when it is probable that future economic benefits will flow to the entity and the cost can be measured reliably (IAS 40.16). Initial measurement is at cost, including transaction costs (IAS 40.20). This is the same starting point as IAS 16.

Cost includes the purchase price plus directly attributable costs β€” legal fees, property transfer taxes, and other transaction costs. If payment is deferred beyond normal credit terms, the cost is the present value of future payments (the discount is unwound through finance costs over the credit period).

Property Under Construction β€” Special Rules

Property being constructed for future use as investment property falls within IAS 40's scope (not IAS 16). Under IAS 40.53A, such property is measured at fair value if reliably determinable. If fair value cannot be reliably determined at the construction stage, the entity measures at cost until the earlier of:

  1. The date when fair value becomes reliably determinable, or
  2. The date construction is complete

Once construction is complete, it is presumed that fair value can be reliably measured β€” and this presumption cannot be rebutted. At completion, the entity records a journal entry recognising the difference between cost and fair value in profit or loss.

Journal Entry β€” Self-Constructed Investment Property Completion

Scenario: Property built at cost of $900,000; fair value at completion = $1,050,000

Account Dr Cr
Investment Property (at fair value) $1,050,000
Investment Property β€” WIP (at cost) $900,000
Profit or Loss (gain on completion) $150,000

The $150,000 gain goes to profit or loss β€” this is unique to investment property and has no equivalent in IAS 16.

Fair Value Model vs Cost Model: How Do They Compare?

After initial recognition at cost, an entity must choose one accounting policy and apply it to all investment property (IAS 40.30). The two options are the fair value model and the cost model. This policy choice is a big deal β€” switching is treated as a change in accounting policy under IAS 8 and is only permitted if it results in a more reliable presentation.

Feature Fair Value Model Cost Model
Carrying amount Fair value at each reporting date Cost less accumulated depreciation and impairment
Where gains/losses go Profit or loss (P&L) β€” always N/A β€” no fair value remeasurement
Depreciation NOT charged Required (per IAS 16 rules)
Impairment N/A (absorbed in FV remeasurement) IAS 36 applies β€” see IAS 36 examples
Fair value disclosure Measured and disclosed Must still DISCLOSE fair value in notes (IAS 40.79(e))
Revaluation surplus Not applicable Not applicable
OCI used? Only on transfer FROM PPE (revaluation model) at the moment of transfer No
Model switching Cost β†’ FV: treated as change in policy (IAS 8); FV β†’ Cost: extremely rare Same rules apply

⚠️ SBR Exam Warning β€” OCI vs P&L Confusion

Eduyush faculty analysis of examiner reports (Sep/Dec 2025, Arundel Co Q3a(ii)):

"Many candidates thought that a gain should be recognised in profit or loss on the transfer and that subsequent remeasurements should be recognised in OCI." β€” This is the exact opposite of the correct treatment.

The rule: Under IAS 40's fair value model, NO gain is recognised in profit or loss at the transfer date (unless the transfer is from inventory). ALL subsequent fair value changes go to profit or loss, NOT OCI. OCI is only used at the point of transfer FROM PPE (under the revaluation model) to recognise the revaluation uplift at that single moment.

What Is the Difference Between IAS 40 Fair Value Model and IAS 16 Revaluation Model?

This is one of the most commonly tested distinctions in both ACCA FR and ACCA SBR. Both models involve fair value β€” but the accounting treatment of the resulting changes is fundamentally different.

Feature IAS 40 β€” Fair Value Model IAS 16 β€” Revaluation Model
Applies to Investment property Owner-occupied property (PPE)
FV increase β†’ Profit or Loss β†’ OCI (Revaluation Surplus in equity)
FV decrease β†’ Profit or Loss β†’ OCI (reduces surplus) or P&L if surplus exhausted
Revaluation surplus Never created Accumulates in equity; released to retained earnings on disposal
Depreciation Not charged Charged (on revalued amount)
Frequency of revaluation Every reporting date (mandatory) Sufficiently regular (entity's judgment)

πŸ’‘ Pro Tip β€” The One-Line Memory Rule

IAS 16 revaluation: gains go to equity (OCI), only losses hit P&L.
IAS 40 fair value: ALL changes β€” gains AND losses β€” go to P&L. No equity buffer. This distinction is examinable in almost every sitting.

IAS 40 Transfers: Complete Journal Entries for All 8 Scenarios

A transfer to or from investment property only occurs when there is a change of use, evidenced by actual events (IAS 40.57). Management's decision or intention alone does not trigger a transfer. Examples of evidence include:

  • Commencement of owner-occupation (IP β†’ PPE)
  • Commencement of development with a view to sale (IP β†’ Inventory)
  • End of owner-occupation (PPE β†’ IP)
  • Commencement of an operating lease to another party (Inventory β†’ IP)

⚠️ SBR Exam Warning β€” Transfer Date Confusion

Eduyush faculty analysis of examiner reports (Sep/Dec 2025, Arundel Co Q3a(ii)):

"Some candidates stated that the transfer didn't take place until the property was ready to lease out at the year end." This is incorrect. The transfer takes place when there is evidence of the change of use β€” for example, when an entity ceases occupying a building and it becomes available for lease. Waiting until the lease commences is wrong.

Transfer Rules Summary Table

Transfer Direction Model Treatment of Difference at Transfer Post-Transfer Measurement
PPE (IAS 16) β†’ IP IP: Fair Value Revalue PPE under IAS 16 first: gain β†’ OCI (Revaluation Surplus); loss β†’ P&L FV at transfer date = starting carrying amount for IP; subsequent FV changes β†’ P&L
PPE (IAS 16) β†’ IP IP: Cost Transfer at carrying amount; no gain or loss Continue depreciating per IAS 16 rules
IP β†’ PPE (IAS 16) IP: Fair Value Fair value at transfer date = deemed cost for IAS 16; no P&L gain/loss at transfer Depreciate from deemed cost per IAS 16
IP β†’ PPE (IAS 16) IP: Cost Transfer at carrying amount (cost less depreciation); no gain or loss Continue per IAS 16
Inventory (IAS 2) β†’ IP IP: Fair Value Difference between FV and carrying amount β†’ Profit or Loss FV at transfer date = starting IP carrying amount; subsequent changes β†’ P&L
IP β†’ Inventory (IAS 2) IP: Fair Value Fair value at transfer date = deemed cost for IAS 2; no P&L gain/loss at transfer Carry at lower of cost (deemed) and NRV under IAS 2
IP β†’ IFRS 5 (Held for Sale) Any Measure at lower of carrying amount and FVLCTS IFRS 5 rules apply; IAS 40 measurement ceases
IP under construction β†’ IP IP: Fair Value Difference between FV and cost at completion β†’ Profit or Loss FV from completion date; changes β†’ P&L

Scenario 1: PPE (Cost Model) β†’ Investment Property (Fair Value Model)

No revaluation model on PPE side. At transfer date, FV differs from carrying amount. IAS 40.61: fair value becomes the new carrying amount. Any difference β€” whether FV is above or below CV β€” goes directly to profit or loss.

Journal Entries: PPE (Cost Model) β†’ IP (FV Model)

Scenario A: FV ($1,200,000) > Carrying Amount ($1,000,000)

Account Dr Cr
Accumulated Depreciation (PPE) $XXX
Investment Property (FV) $1,200,000
PPE (Cost) $1,000,000 + depr.
Profit or Loss β€” Gain on Transfer $200,000

Scenario B: FV ($850,000) < Carrying Amount ($1,000,000)

Account Dr Cr
Accumulated Depreciation (PPE) $XXX
Investment Property (FV) $850,000
Profit or Loss β€” Loss on Transfer $150,000
PPE (Cost) $1,000,000 + depr.

Note: This is the one transfer direction where gains/losses hit P&L at the transfer date. This is different from the PPE Revaluation Model scenario below.

Scenario 2: PPE (Revaluation Model) β†’ Investment Property (Fair Value Model)

This is the most commonly tested scenario. The PPE is first revalued to fair value under IAS 16 at the transfer date. The resulting revaluation gain goes to OCI. After transfer, the property is an investment property and ALL subsequent FV changes go to P&L. The revaluation surplus remains in equity until derecognition β€” it is NEVER recycled through P&L.

Journal Entries: PPE (Revaluation Model) β†’ IP (FV Model)

Opening data: Building cost $2,000,000; accumulated depreciation $500,000; carrying amount $1,500,000; existing revaluation surplus $100,000; FV at transfer date $1,800,000

Step 1: Revalue PPE to FV under IAS 16 at transfer date (FV $1,800,000 > CV $1,500,000)

Account Dr Cr
Accumulated Depreciation β€” PPE $500,000
PPE β€” Building $500,000
PPE β€” Building (revalue to FV) $300,000
OCI β€” Revaluation Surplus $300,000

PPE is now carried at FV $1,800,000. Total revaluation surplus = $100,000 + $300,000 = $400,000.

Step 2: Reclassify PPE to Investment Property

Account Dr Cr
Investment Property $1,800,000
PPE β€” Building $1,800,000

The revaluation surplus of $400,000 remains in equity. It does NOT transfer to P&L at this point, or ever β€” except as a direct transfer to retained earnings when the property is derecognised.

Subsequent period: FV rises by $80,000

Account Dr Cr
Investment Property $80,000
Profit or Loss $80,000

Post-transfer FV changes always go to P&L. The revaluation surplus balance ($400,000) does not change β€” it will be released directly to retained earnings only upon disposal of the property, per IAS 16.41.

⚠️ SBR Exam Warning β€” FV Decrease at PPE β†’ IP Transfer Date

Eduyush faculty insights: When the fair value at the PPE β†’ IP transfer date is below the carrying amount (a loss scenario), the loss is recognised in profit or loss to the extent it exceeds any existing revaluation surplus. The surplus is first used to absorb the loss; only the remainder hits P&L. This asymmetry mirrors IAS 16's rules and catches many candidates off guard.

Scenario 3: PPE β†’ Investment Property (Cost Model)

Journal Entry: PPE β†’ IP (Cost Model)

Transfer at carrying amount. No revaluation, no gain or loss.

Account Dr Cr
Investment Property (Cost) $CV
Accumulated Depreciation β€” PPE $Acc Depr
PPE β€” Building (Cost) $Cost
Accumulated Depreciation β€” IP $Acc Depr

The investment property is carried at cost less depreciation per IAS 16. Fair value must still be disclosed in notes. Impairment testing under IAS 36 applies β€” see IAS 36 CGU examples.

Scenario 4: Investment Property (FV Model) β†’ PPE

Journal Entry: IP (FV Model) β†’ PPE

The fair value at the transfer date becomes the deemed cost for IAS 16 purposes. No gain or loss is recognised at transfer. Entity then commences depreciation from the deemed cost.

Account Dr Cr
PPE β€” Building (at deemed cost = FV) $FV
Investment Property $FV (current carrying amount)

The IAS 40 carrying amount equals FV at every reporting date, so there is no "difference" to account for at transfer. The entity commences depreciating the PPE from its deemed cost over its remaining useful life.

Scenario 5: Investment Property (Cost Model) β†’ PPE

Journal Entry: IP (Cost Model) β†’ PPE

Transfer at carrying amount (cost less accumulated depreciation and impairment). No gain or loss.

Account Dr Cr
PPE β€” Building $Original Cost
Investment Property $Original Cost
Accumulated Depreciation β€” PPE $Acc Depr on IP
Accumulated Depreciation β€” IP $Acc Depr on IP

Scenario 6: Inventory (IAS 2) β†’ Investment Property (FV Model)

Journal Entry: Inventory β†’ IP (FV Model)

The difference between fair value and the carrying amount of inventory is recognised in profit or loss at the transfer date. This is the same as a sale.

Example: Inventory carrying amount $300,000; FV at transfer date $380,000

Account Dr Cr
Investment Property (FV) $380,000
Inventory $300,000
Profit or Loss β€” Gain $80,000

If FV < carrying amount, the difference is a loss in P&L. The rationale: this is economically equivalent to selling the inventory at fair value, so a gain or loss is appropriate.

Scenario 7: Investment Property (FV Model) β†’ Inventory (IAS 2)

Journal Entry: IP (FV Model) β†’ Inventory

Fair value at the date of transfer becomes the deemed cost of the inventory under IAS 2. No gain or loss at transfer β€” because the investment property is already carried at FV under IAS 40.

Account Dr Cr
Inventory (deemed cost = FV) $FV
Investment Property $FV

The deemed cost for IAS 2 purposes is the fair value at transfer. The inventory will then be tested against NRV in subsequent periods.

"No competitor resource provides complete journal entries for all 8 IAS 40 transfer scenarios. Mastering these entries is the single most effective way to secure transfer-related marks in ACCA SBR."

IAS 40 Γ— IFRS 16: When Does a Right-of-Use Asset Become Investment Property?

This is an area where virtually no competitor article provides meaningful coverage β€” yet it is directly testable in ACCA SBR. Since 2019, IFRS 16 amended IAS 40 to confirm that a right-of-use (ROU) asset held by a lessee can qualify as investment property under IAS 40 β€” provided it meets the definition of investment property.

When Does an ROU Asset Qualify as Investment Property?

A lessee's ROU asset qualifies as investment property when the lessee subleases the underlying asset as an operating lease to a third party, and holds it to earn rental income or for capital appreciation. The lessee does NOT own the asset β€” but the economic reality of holding it to earn income from others is functionally equivalent.

Key Accounting Rules for ROU Investment Property

⚠️ SBR Exam Warning β€” Lessor vs Lessee Confusion

Eduyush faculty analysis of examiner reports (Sep/Dec 2025, Arundel Co Q3a(ii)):

"Several candidates saw the words 'operating lease' and wasted time writing, in detail, about IFRS 16 Leases from the perspective of the lessee, rather than the lessor." The building owner who leases out property is the lessor. The lessor applies IAS 40 to classify/measure the building β€” not IFRS 16. IFRS 16 applies to the lessee (tenant). Only write about IFRS 16 in the context of IAS 40 when the question involves a lessee who is subleasing their ROU asset.

Rule Detail
Initial measurement Per IFRS 16 β€” measured at the initial amount of the lease liability plus initial direct costs and prepaid lease payments (NOT per IAS 40 cost at transaction price)
Subsequent measurement If the entity uses the fair value model for investment property, it MUST apply the fair value model to the ROU investment property (IFRS 16.34) β€” no cherry-picking
Fair value of ROU IP IAS 40.50(d): the fair value is determined by taking the property's gross fair value and adding back the recognised lease liability (since the liability offsets the gross asset value)
At inception (market-rate lease) Fair value of the ROU IP β‰ˆ zero at inception (the right to the asset and the obligation to pay rent are economically equivalent at a market rate)
FV changes post-inception Go to profit or loss, consistent with the fair value model rules under IAS 40

πŸ’‘ Pro Tip β€” The Lessor / Lessee Decision Tree

Ask these questions in sequence when a lease appears in an SBR scenario:

  1. Who is the building owner? β†’ The owner (lessor) applies IAS 40 to the building.
  2. Is the property leased under a head lease? β†’ If yes, the lessee has an ROU asset under IFRS 16.
  3. Is the lessee subleasing the ROU asset? β†’ If yes, AND the sublease meets IAS 40's definition, the ROU asset qualifies as investment property.
  4. Does the entity use the fair value model? β†’ If yes, MUST apply it to the ROU investment property too.

For a broader guide to IFRS standards interactions, see the IFRS Standards List.

IAS 40 Γ— IFRS 5: What Happens When Investment Property Is Held for Sale?

When an entity decides to sell an investment property and it meets the IFRS 5 classification criteria, the interaction depends on which measurement model the entity uses.

Investment Property under the Fair Value Model + IFRS 5

Under IFRS 5.5(d), investment property measured at fair value under IAS 40 is excluded from IFRS 5's measurement requirements. This means:

  • The property does NOT get remeasured to the lower of carrying amount and FVLCTS
  • It continues to be measured at fair value under IAS 40 until derecognition
  • IFRS 5's presentation requirements still apply: the asset must be presented separately as a current asset on the statement of financial position
  • Depreciation still does NOT apply (consistent with fair value model)

Investment Property under the Cost Model + IFRS 5

Cost model investment property is NOT excluded from IFRS 5's measurement requirements. Once it meets the held-for-sale criteria:

  • Cease depreciation immediately
  • Measure at the lower of carrying amount and fair value less costs to sell (FVLCTS)
  • Present separately as a current asset
  • Any write-down to FVLCTS is recognised in profit or loss
Feature IP at Fair Value Model β†’ IFRS 5 IP at Cost Model β†’ IFRS 5
IFRS 5 measurement? EXCLUDED β€” continues at FV under IAS 40 APPLIES β€” lower of CV and FVLCTS
Depreciation Never applicable Ceases on classification
Presentation Presented separately (current asset) per IFRS 5 Presented separately (current asset) per IFRS 5
FV changes Continues to P&L until derecognition Write-down to FVLCTS recognised in P&L if CV > FVLCTS

Deferred Tax Implications of the IAS 40 Fair Value Model

Every fair value gain under IAS 40 creates a taxable temporary difference under IAS 12 β€” and this interaction appears in ACCA SBR questions. When investment property increases in fair value, the carrying amount in the financial statements exceeds the tax base, creating a deferred tax liability.

Importantly, the IAS 12.15 initial recognition exemption β€” which normally prevents recognition of deferred tax when an asset is acquired in a transaction that does not affect P&L β€” does NOT apply here. This is because fair value changes under IAS 40 are recognised in profit or loss. The taxable temporary difference arising from ongoing fair value movements must be recognised as a deferred tax liability each reporting period.

πŸ’‘ Pro Tip β€” Deferred Tax Journal Entry

Investment property FV increases by $100,000; tax rate = 25%

Account Dr Cr
Tax Expense (P&L) $25,000
Deferred Tax Liability $25,000

The net P&L gain on investment property is $100,000 less deferred tax of $25,000 = net $75,000. In SBR scenarios, always consider whether a deferred tax adjustment is required when investment property is remeasured.

SBR Exam Focus: What the ACCA Examiner Tests on IAS 40

IAS 40 appears regularly in ACCA SBR examination questions, typically as part of a multi-standard scenario. The Sep/Dec 2025 sitting (Arundel Co, Q3a(ii)) is the most recent example and produced very clear examiner commentary on where candidates went wrong.

πŸ’‘ Eduyush Faculty Insights β€” Sep/Dec 2025 SBR Examiner Findings

Our faculty analysis of the ACCA SBR examiner report for Sep/Dec 2025 (Q3 Arundel Co a(ii)) identifies these critical observations:

  1. "A surprising number of candidates did not know the basic measurement requirements in relation to the transfer, or measurement of the investment property after the transfer." β†’ Candidates need to know: (a) what happens at the transfer date and (b) how the property is measured afterwards.
  2. "Many thought that a gain should be recognised in profit or loss on the transfer and that subsequent remeasurements should be recognised in OCI." β†’ This is backwards: NO gain at transfer (when from PPE revaluation model); ALL subsequent FV changes go to P&L.
  3. "Several candidates saw the words 'operating lease' and wasted time writing about IFRS 16 from the lessee perspective." β†’ The building owner is the lessor. IAS 40 applies to the lessor's measurement of the building.
  4. "Some candidates stated that the transfer didn't take place until the property was ready to lease out." β†’ Transfer occurs at the date of change of use, not when a lease contract is signed.

SBR Exam Technique for IAS 40 Questions

Step-by-Step Approach to IAS 40 Transfer Questions

  1. Classify the property: Is it investment property (rental/capital appreciation) or owner-occupied (IAS 16) or inventory (IAS 2)?
  2. Identify the direction of transfer: Is it going into or out of investment property?
  3. Determine the model: Fair value or cost model for the investment property?
  4. Apply the transfer rule: Use the table above to determine what treatment applies at the transfer date.
  5. Account for post-transfer measurement: Under FV model β†’ P&L; under cost model β†’ depreciation + IAS 36.
  6. Consider interactions: IFRS 16 if lessee subleases; IFRS 5 if held for sale; IAS 12 if deferred tax is relevant.

For a full list of SBR technical articles from ACCA Global, see SBR Technical Articles and compare with ACCA FR Technical Articles to understand the step-up in application required at SBR level. You may also want to review the ACCA Strategic Professional Syllabus 2026-27 for the full IAS 40 learning outcomes.

"SBR candidates who score well on IAS 40 questions are those who can state BOTH the treatment at the transfer date AND the treatment of subsequent remeasurements without confusing the two."

πŸ“š Prepare for ACCA SBR with the Right Resources

IAS 40 is just one of the standards you need to master for ACCA SBR. Comprehensive study materials make the difference between understanding concepts and scoring marks in scenario-based questions.

Eduyush recommends BPP and Kaplan study materials for SBR β€” available as digital e-books for immediate access:

View BPP ACCA Strategic Professional E-Books β†’

About the Author

Sandhya B β€” ACCA-qualified, IFRS Specialist

Sandhya is a faculty member at Eduyush and contributes to ACCA SBR exam preparation content. With extensive experience in financial reporting under IFRS, she specialises in helping candidates navigate complex multi-standard interactions, including IAS 40 transfer accounting, IFRS 9 hedge accounting, and IFRS 5 measurement rules. Her teaching is grounded in analysis of ACCA examiner reports, ensuring content reflects what the examining team actually tests.

Reviewed and updated: March 2026 | Topic: IAS 40 Investment Property β€” Transfers, Fair Value Model vs Cost Model

Frequently Asked Questions about IAS 40 Investment Property

What triggers a transfer to or from investment property under IAS 40?

A transfer occurs when there is a genuine change of use evidenced by actual events, not merely management intention (IAS 40.57). Examples include: commencement of owner-occupation (IP β†’ PPE), commencement of development with a view to sale (IP β†’ Inventory), or end of owner-occupation (PPE β†’ IP). Management intent alone is not sufficient β€” observable events are required.

Do fair value gains under IAS 40 go to profit or loss or OCI?

Under the IAS 40 fair value model, all fair value changes β€” both gains and losses β€” go to profit or loss (IAS 40.35). OCI is only used at the single moment of transfer from PPE (revaluation model) to recognise the revaluation uplift at transfer date. All subsequent investment property fair value movements are P&L items β€” the most common SBR exam misconception.

What is the difference between IAS 40 fair value model and IAS 16 revaluation model?

Under IAS 16's revaluation model, fair value increases of owner-occupied property go to OCI (revaluation surplus in equity). Under IAS 40's fair value model, ALL changes β€” increases and decreases β€” go to profit or loss, with no revaluation surplus created. IAS 40 also does not require depreciation under the fair value model; IAS 16 always requires it.

What is deemed cost when investment property is transferred out under the fair value model?

Deemed cost is the fair value at the transfer date, used as the opening cost under the receiving standard (IAS 16 or IAS 2). When investment property transfers to PPE, the fair value becomes the PPE's deemed cost from which depreciation is calculated. No gain or loss is recognised at transfer β€” the IP was already carried at fair value (IAS 40.60).

Can an entity switch from the cost model to the fair value model under IAS 40?

Yes, if it produces a more reliable presentation β€” treated as a change in accounting policy under IAS 8 with retrospective application. Switching from fair value to cost is "highly unlikely to result in a more reliable presentation" and is almost never seen in practice. Once the fair value model is adopted, entities do not revert to cost.

How does IAS 40 interact with IFRS 5 when an investment property is held for sale?

Fair value model investment property is excluded from IFRS 5's measurement requirements (IFRS 5.5(d)) β€” it continues at fair value until derecognition, with changes in P&L. Cost model investment property IS subject to IFRS 5 measurement (lower of carrying amount and FVLCTS) and must cease depreciation. Both models must apply IFRS 5's presentation rules: present as a current asset.

What happens when owner-occupied property (PPE) is reclassified as investment property?

The PPE is first revalued to fair value under IAS 16. A gain goes to OCI (revaluation surplus); a loss reduces any existing surplus, with the remainder in P&L. The property then moves to investment property at fair value, with all subsequent fair value changes going to profit or loss. The revaluation surplus stays in equity until disposal.

Can a lessee's right-of-use asset qualify as investment property under IAS 40?

Yes β€” when a lessee subleases the underlying asset as an operating lease meeting IAS 40's definition. Initial measurement follows IFRS 16 rules (not IAS 40 cost). If the entity uses the fair value model, the same model must be applied to the ROU investment property (IFRS 16.34) β€” selective use of cost for the ROU asset while using fair value elsewhere is not permitted.

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