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IFRS amendments to IAS 40

IFRS amendments to IAS 40-International Accounting Standards :  On December 31, 2001, The International Accounting Standards Foundation (IASF) was incorporated as a tax-exempt organisation in the U.S. state of Delaware.On February 6, 2001, the International Financial Reporting Standards Foundation was also incorporated as a tax-exempt organisation in Delaware. The IFRS Foundation is an independent, not-for-profit organisation. Its primary mission is to develop, in the public interest, a single set of high-quality, understandable, enforceable and globally accepted International Financial Reporting Standards (IFRS) based upon clearly articulated principles.

IFRS are developed by the International Accounting Standards Board (IASB), the independent standard-setting body of the IFRS Foundation.The IASB assumed accounting standard-setting responsibilities from its predecessor body, the International Accounting Standards Committee (IASC), on March 1, 2001. This was the culmination of a restructuring based on the recommendations of the report Recommendations on Shaping IASC for the Future.

The IASB forms part the three-tier structure employed by the IFRS Foundation and is responsible for setting the IFRS and related technical activities. The IASB is overseen by the Trustees of the IFRS Foundation, responsible for the organisation’s governance, the appointment of IASB members and funding. The IFRS Foundation is publicly accountable to a Monitoring Board of capital market authorities.

IFRS amendments to IAS 40

IFRS amendments to IAS 40

IFRS amendments to IAS 40

The International Accounting Standard 40 ( IAS 40 ) is an accounting standard of the IASB and regulates the accounting for investments held as financial investment .

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The Interpretations Committee received a request to clarify the application of paragraph 57 of IAS 40 Investment Property, which provides guidance on transfers to, or from, investment properties.

The submitter observes that the 2008 Annual Improvement Project extended the application of IAS 40 to investment properties under construction. However it notes that no corresponding changes were made to the guidance on transfers into, or out of, investment properties in paragraph 57 of IAS 40.

The submitter asks whether the lack of an amendment to paragraph 57 was an oversight or whether the intention was to prohibit transfers of a property under construction or development, previously classified as inventory, to investment property when there is an evident change in use.

The IASB tentatively agreed to amend paragraph 57 to reinforce the principle for transfers into, or out of, investment property in IAS 40 to specify that:

    • a transfer into, or out of investment property should be made only when there has been a change in use of the property; and
    • such a change in use would involve an assessment of whether the property qualifies as an investment property. That change in use should be supported by evidence.

The IASB published the Exposure Draft Transfers of Investment Property (Proposed amendment to IAS 40). This proposes a narrow-scope amendment to IAS 40 Investment Property to clarify the guidance on transfers to, or from, investment properties. The proposals were open for public comment until 18 March 2016.

The Interpretations Committee considered a summary of the comment letters to the Exposure Draft Transfers of Investment Property (Proposed amendments to IAS 40), and discussed the proposals in the Exposure Draft. The Interpretations Committee recommended to the Board that it should proceed with the proposed amendments to IAS 40, subject to some clarifications.

In July 2016, the Board agreed with the Interpretations Committee’s recommendations and decided to finalise the amendments to IAS 40.

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The Board published the final amendments in December 2016.

IFRS amendments to IAS 40

Under IAS 40, assets such as landed property or real estate held as financial investments are used to generate rental income. Investment property does not include property, plant and equipment that are used in the operating business, such as production, service or administration, or are held for sale within the ordinary course of business. Accounting for such property, plant and equipment is governed by IAS 16.

IFRS amendments to IAS 40: Initial evaluation 

Investment properties are initially to be valued at the acquisition or production cost (including possible transaction costs). The initial valuation is therefore identical to the initial valuation of “normal” property, plant and equipment according to IAS 16.

IFRS amendments to IAS 40: Follow-up

In contrast to normal items of property, which are normally depreciated over their useful lives, investment properties can be valued alternatively at the fair value . The fair value model of IAS 40 differs conceptually from the revaluation method permitted under IAS 16 . In the case of the fair value model, gains and losses arising from the new value approach are recognised immediately in the income statement . In the revaluation model in accordance with IAS 16, profits are to be included in a revaluation reserve within equity.

The option to be coded in IAS 40.30 between the valuation at amortised cost or fair value is uniform for all investment properties. A change of method may only be carried out if the change improves the insight into the asset, financial and earnings position. It is unlikely that a change from the so-called fair value model to the cost model improves the insight, so that a change will basically only be possible from cost model to fair value model. This change must be applied to the entire portfolio of investment properties.

IFRS amendments to IAS 40: Background

The IFRS Interpretations Committee received a request for clarification of the application of paragraph 57 of IAS 40 Investment Property, which provides guidance on transfers to, or from, investment properties. More specifically, the question was whether a property under construction or development that was previously classified as inventory could be transferred to investment property when there was an evident change in use.

The Interpretations Committee referred the matter to the IASB, and at its April 2015 meeting, the IASB agreed to amend the paragraph to reinforce the principle for transfers into, or out of, investment property in IAS 40 to specify that such a transfer should only be made when there has been a change in use of the property. The proposals in the exposure draft published in November 2015 have now been finalised.

IFRS amendments to IAS 40

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