I have a small favour to ask.I am sure that I will get the appropriate feedback on this forum.
My company has classified a property interest held under a operating lease as an Investment Property and is using the fair value method to value the Investment property. The Property is leased to the company(as "right to use") for a period of 25 years. At the end of 25 years, the value of the Property should be nil. But if we fair value the Property the value is increasing(based on the fair valuations provided by the valuators). What can we do to reduce the value of the Investment Property so that it will be nil at the end of 25 years? Please note that we need to account it as per IFRS'. Initially i thought it was wrong on my company's part to classify it as Investment Property Until
I read the following under IAS17, Quote "A lessee may classify a property interest held under an operating lease as an investment property. If this is done, then the lessee
accounts for the lease as if it were a finance lease, measures investment property using the fair value model and recognizes a lease liability for future lease payments."
My only question is " The fair value of the Investment property is higher than the current cost so should I ask the valuator to consider the lease period of 25 years so that he reduces the price with every year so that the property will be nil at the end of 25 years.