Accounting Treatment of Leased Investment Property.

Question

If the Comapny held a property under a finance lease and decided to classify as Investment property for capital appreciation. How the accounting entry can be passed in accordance with IAS 17 & IAS 40

Answer 1

What is the model that you are going to adopt? As per IAS 40, investment property should initially be measured at cost and subsequently using either fair value model or cost model. If you have already recognized the property as finance lease, then you would probably have following accounts in your books:

- Asset account ( recorded at the lower of the fair value of the asset and the present value of the minimum lease payments)
- Lease creditor account (recorded at the same value)
- Provision for depreciation
- Lease Interest expenses charged (P&L)
- Depreciation charged (P&L)

If you select cost model, then you need not make any entries as I understand, just classify the asset as an investment property.

Comments

I think Depreciation charged and prov for depreciation is only when you are measuring initially at cost.
If suppose, I have fair valued the investment property (which comes as  "Right to Use" for a period of 25 years) and at the end of 25 years i need to show the value as nil because the lease period ends. Should I ask the valuator to consider the lease period of 25 years so that he can reduce the fair value of the property (with each passing year) so that at the end of 25 years the value will be nil.
Please note that We have paid upfront for the Investment property for a period of 25 years.