Investment property is a term known by many, but few fully understand it—the accounts team at GCS Malta outline in further detail in our latest article.
IPSAS 16 defines Investment Property as land or building or part of the building, held to earn rentals or appreciation in value or both.
Investment Property refers to land or a building owned by a ministry or department for investment purposes rather than for business use. It may generate cash flows independently of other assets that the entity holds. An investment property will generally entail property leased under an operating lease to a lessee, where the central Government entity acts as the lessor.
A central Government entity can hold property, whereby:
- a portion of the property is held to earn rentals or for capital appreciation
- the entity itself uses another portion for administrative purposes or for delivering goods and services
In determining whether to recognise this property as Investment property under IPSAS 16 or as Property, Plant and Equipment under IPSAS 17, the entity needs to determine if the portions can be sold separately and if so, then:
- the portion utilised by the Government for admin purposes is to be recognised as PPE – IPSAS 17
- the portion rented out is to be recognised as Investment Property
The Government entities can acquire investment property by:
When purchased, the cost would be the initial purchase price adding up any costs directly attributable to bringing the property in the necessary condition to operate as requested like, professional fees and property transfer taxes.
When self-constructed, the cost of the investment property would be the cost at the date of completion.
When the investment property is acquired through donation/contribution, such property is to be measured at fair value as at the date of acquisition.
IPSAS 16 states that an investment property shall be derecognised on disposal or when it is permanently withdrawn from use, and no future economic benefits are expected from its removal.
It can happen as a result of the following:
- Finance lease
- Donation/Transfer to an organisation