IAS 40 Disclosure Requirements: What You Must Report
IAS 40 Disclosure Requirements: Full Guide
- IAS 40 requires both general disclosures (applicable to all entities) and model-specific disclosures depending on whether the fair value model or cost model is used.
- All entities must disclose the fair value of their investment property — even those using the cost model.
- A reconciliation of the opening and closing carrying amount is required each period.
- Rental income and direct operating expenses must be disclosed separately for income-generating and non-income-generating properties.
- Restrictions on sale or remittance of proceeds, and contractual obligations for future expenditure, must also be disclosed.
IAS 40 disclosure requirements cover everything an entity must report in its financial statements about investment property — from the measurement model chosen and how fair value was determined, to reconciliations of carrying amounts and details of rental income. These disclosures apply to all entities that hold investment property under IFRS, with additional requirements depending on whether the fair value model or cost model is used.
Getting disclosures right is not just a compliance exercise — it directly affects how investors, analysts, and lenders assess the performance and risk profile of an entity's property portfolio. This guide presents every disclosure requirement in a clear, practical format, with sample disclosure notes using Delta Properties Ltd.
General Disclosures — Required for All Entities
Regardless of the measurement model chosen, IAS 40 requires the following disclosures from all entities that hold investment property (IAS 40.75):
1. Accounting Policy and Model Choice
The entity must state clearly whether it applies the fair value model or the cost model. This is an accounting policy under IAS 8 and must be disclosed in the notes.
2. Classification Criteria
The entity must disclose the criteria it uses to distinguish investment property from:
- Owner-occupied property (IAS 16)
- Property held for sale in the ordinary course of business (IAS 2 / IFRS 5)
This is particularly important for entities with mixed-use property or where classification decisions are not straightforward.
3. Methods and Assumptions for Fair Value
The entity must disclose the methods and significant assumptions used in determining the fair value of investment property, even if using the cost model (where fair value is disclosed in notes rather than on the face of the financial statements). This includes:
- Whether the fair value was determined with the assistance of an independent qualified valuer
- The valuation techniques used (comparable sales, income capitalisation, discounted cash flows)
- Key inputs and assumptions (capitalisation rates, discount rates, market rental rates)
- The extent to which the fair value is based on Level 1, Level 2, or Level 3 inputs per IFRS 13
4. Rental Income
The entity must disclose rental income earned from investment property during the period. This is reported separately from other revenue.
5. Direct Operating Expenses
Direct operating expenses relating to investment property must be disclosed in two separate categories:
- Operating expenses from investment property that generated rental income during the period
- Operating expenses from investment property that did not generate rental income (e.g., vacant properties, properties held for capital appreciation only)
6. Restrictions and Contractual Obligations
The entity must disclose:
- Restrictions on the realizability of investment property or the remittance of income and disposal proceeds
- Contractual obligations to purchase, construct, or develop investment property, or for repairs, maintenance, or enhancements
Additional Disclosures — Fair Value Model
Entities using the fair value model must provide the following additional disclosures (IAS 40.76):
Reconciliation of Carrying Amounts
A reconciliation showing the movement in carrying amount from the beginning to the end of the period, including:
- Opening balance
- Additions (acquisitions, subsequent expenditure capitalised, business combinations)
- Disposals
- Net gains or losses from fair value adjustments recognised in P&L
- Net exchange differences (for foreign currency items)
- Transfers to and from inventories and owner-occupied property
- Closing balance
Inability to Determine Fair Value Reliably
Where the entity has been unable to determine the fair value of an investment property reliably (the rebutted rebuttable presumption), it must disclose:
- A description of that property
- An explanation of why fair value cannot be reliably measured
- If possible, the range of estimates within which fair value is highly likely to lie
- The fact that the cost model has been applied to that property
Gain or Loss on Disposal
Where investment property at fair value is disposed of during the period, the entity must disclose the gain or loss on disposal.
Additional Disclosures — Cost Model
Entities using the cost model must provide these additional disclosures (IAS 40.79):
Depreciation Methods and Rates
The entity must disclose the depreciation methods used, the useful lives or depreciation rates applied, and the gross carrying amounts and accumulated depreciation at the beginning and end of the period.
Fair Value of Investment Property
This is the most significant additional requirement for cost model users — the entity must disclose the fair value of its investment property in the notes. If fair value cannot be reliably determined, the entity must disclose:
- A description of the property
- Why fair value cannot be reliably measured
- The range of estimates within which fair value is highly likely to lie (if possible)
Reconciliation of Carrying Amounts
A reconciliation of the carrying amount from beginning to end of period, showing:
- Opening gross carrying amount and accumulated depreciation
- Additions
- Assets classified as held for sale under IFRS 5 (and other disposals)
- Depreciation recognised in the period
- Impairment losses and reversals
- Transfers to/from investment property
- Net exchange differences
- Closing gross carrying amount and accumulated depreciation
Carrying Amount Reconciliation — Detailed Format
Below is the standard format for the carrying amount reconciliation required under IAS 40 for each model.
Fair Value Model — Reconciliation Format
| Movement | $'000 |
|---|---|
| Balance at beginning of year | — |
| Acquisitions during the year | 820 |
| Subsequent expenditure capitalised | — |
| Disposals | — |
| Net fair value gain recognised in P&L | 50 |
| Transfers to/from other categories | — |
| Balance at end of year | 870 |
Cost Model — Reconciliation Format
| Movement | Cost $'000 | Acc. Dep. $'000 | Net $'000 |
|---|---|---|---|
| Opening balance | — | — | — |
| Additions | 820 | — | 820 |
| Depreciation for the year | — | (16) | (16) |
| Disposals | — | — | — |
| Closing balance | 820 | (16) | 804 |
| Fair value at year-end (disclosed): $870,000 | |||
Rental Income and Expense Disclosures
IAS 40 requires specific disclosure of rental income and related operating expenses. These are typically shown in the notes as follows:
| Disclosure Item | Year 1 $ |
|---|---|
| Rental income from investment property generating rental income | 60,000 |
| Rental income from investment property not generating rental income | Nil |
| Direct operating expenses — properties generating rental income | (6,000) |
| Direct operating expenses — properties not generating rental income | Nil |
| Net income from investment property | 54,000 |
Restrictions and Contractual Obligations
IAS 40 requires disclosure of any restrictions that prevent the entity from freely selling the investment property or remitting proceeds to its owners. Examples include:
- Mortgages or security interests over investment property (the property is pledged as collateral)
- Statutory restrictions on foreign exchange remittance in certain jurisdictions
- Leasehold restrictions that limit the owner's ability to sell or redevelop
- Planning or zoning restrictions
The entity must also disclose contractual obligations to purchase, construct, or develop investment property, or to carry out repairs, maintenance, or enhancements. This is especially important when an entity has committed to significant capital expenditure on its portfolio.
Sample Disclosure Notes — Delta Properties Ltd
Note X: Investment Property (Fair Value Model)
Accounting Policy: Investment property is carried at fair value at each reporting date. Changes in fair value are recognised in profit or loss in the period they arise. No depreciation is charged on investment property.
Valuation: The fair value of investment property was determined by an independent qualified valuer, Smith & Associates Property Advisors, as at 31 December Year 1. The valuation was based on the income capitalisation approach using a capitalisation rate of 6.5% applied to contracted and estimated market rentals. This represents a Level 3 fair value measurement under IFRS 13 (significant unobservable inputs).
Reconciliation of Carrying Amount:
| Movement | $ |
|---|---|
| Opening balance (1 January Year 1) | — |
| Acquisitions | 820,000 |
| Net fair value gain recognised in profit or loss | 50,000 |
| Closing balance (31 December Year 1) | 870,000 |
Rental Income and Operating Expenses:
Rental income from investment property generating rental income during the year: $60,000
Direct operating expenses (management fees and insurance) from properties generating rental income: $6,000
Direct operating expenses from properties not generating rental income: Nil
Restrictions: The investment property is not subject to any restrictions on its realizability or the remittance of income and disposal proceeds.
Contractual Obligations: The entity has no contractual obligations to purchase, construct, or develop investment property, or to carry out repairs, maintenance, or enhancements.
Note X: Investment Property (Cost Model — Alternative)
Accounting Policy: Investment property is measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of 50 years.
Reconciliation:
| Movement | Cost $ | Acc. Dep. $ | Net $ |
|---|---|---|---|
| Opening balance | — | — | — |
| Additions | 820,000 | — | 820,000 |
| Depreciation charged | — | (16,400) | (16,400) |
| Closing balance | 820,000 | (16,400) | 803,600 |
Fair value at 31 December Year 1: $870,000 (determined by independent valuer; Level 3 IFRS 13 measurement)
Related Reading
- IAS 40 Investment Property: Complete Guide
- IAS 40: Fair Value Model vs Cost Model
- Investment Property Accounting: Recognition & Measurement
- IAS 40 Examples & Journal Entries
- Other Comprehensive Income: Examples & Disclosure
- Goodwill Impairment: Complete Guide
Frequently Asked Questions — IAS 40 Disclosures
1. Does a cost model user need to disclose fair value?
Yes — this is one of the most important points about IAS 40 disclosures. Even if an entity uses the cost model and does not recognise fair value changes in its financial statements, it must still disclose the fair value of its investment property portfolio in the notes (IAS 40.79(e)). If fair value cannot be reliably determined, the entity must explain why and provide an estimate of the range within which fair value likely falls.
2. What IFRS 13 disclosures are required for investment property?
For fair value measurements, IFRS 13 requires disclosure of the fair value hierarchy level (Level 1, 2, or 3), a description of the valuation techniques used, the significant inputs to the valuation, and — for Level 3 measurements — a reconciliation of movements and a sensitivity analysis. Most investment property falls into Level 3, requiring the most extensive disclosures.
3. Is a reconciliation of carrying amounts mandatory?
Yes. IAS 40 requires a reconciliation of the carrying amount of investment property from the beginning to the end of the period. The line items required differ between the fair value model (which shows fair value adjustments) and the cost model (which shows gross cost, accumulated depreciation, and net carrying amount separately). This reconciliation appears in the notes to the financial statements.
4. How must operating expenses be split in the disclosures?
IAS 40 requires operating expenses to be disclosed in two separate buckets: (1) expenses relating to investment property that generated rental income during the period, and (2) expenses relating to investment property that did not generate rental income — for example, vacant properties or land held purely for capital appreciation. This split helps users assess the efficiency of the investment property portfolio.
5. What must be disclosed about restrictions on investment property?
The entity must disclose any restrictions that limit its ability to sell the investment property freely or to remit the income or disposal proceeds to its shareholders. Common restrictions include mortgage security interests (the property is pledged as collateral for a loan) and lease covenants that restrict redevelopment or sale without tenant consent.
6. Does an entity using the fair value model still need to disclose depreciation methods?
No. Since depreciation is not charged under the fair value model, there is no requirement to disclose depreciation methods or useful lives. These disclosures are only applicable for entities using the cost model, where the asset is depreciated per IAS 16 and the depreciation methods and useful lives must be disclosed.
7. Where do the IAS 40 disclosures appear in the financial statements?
IAS 40 disclosures appear in the notes to the financial statements. The primary financial statements (balance sheet, income statement, statement of changes in equity, cash flow statement) show summary figures only. The detailed note for investment property typically includes the accounting policy, the reconciliation of carrying amounts, the fair value information, rental income and expense disclosure, and any restrictions or obligations.
Prepare for IAS 40 Exam Questions with Confidence
Disclosure questions appear regularly in the ACCA DipIFR exam. Our structured resources ensure you know exactly what to include — and what you can leave out — in every IAS 40 disclosure scenario.
About the Author
Eduyush Team — Our content is created by qualified accounting and finance professionals with extensive experience in IFRS, ACCA, CMA, and CPA curriculum design. The Eduyush Team brings together practitioners and educators to deliver technically accurate, exam-relevant guidance for accounting students and professionals worldwide.
Expertise: IFRS Disclosures | IAS 40 | IFRS 13 Fair Value | ACCA DipIFR | Financial Statement Notes
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