New Zealand Equivalent to International Accounting Standard 40

NZ IAS 40

Investment Property (NZ IAS 40)

Issued November 2004 and incorporates amendments to 31 December 2015 other than consequential

amendments resulting from early adoption of NZ IFRS 15 Revenue from Contracts with Customers

This Standard was issued by the New Zealand Accounting Standards Board of the External Reporting Board pursuant to

section 24(1)(a) of the Financial Reporting Act 1993.

This Standard is a Regulation for the purposes of the Regulations (Disallowance) Act 1989.

NZ IAS 40

This XRB standard contains International Financial Reporting Standards (“IFRS”) Foundation copyright material.

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ISBN 1-877430-46-3

NZ IAS 40

CONTENTS

from paragraph

INTRODUCTION

NEW ZEALAND EQUIVALENT TO INTERNATIONAL

ACCOUNTING STANDARD 40

INVESTMENT PROPERTY (NZ IAS 40)

OBJECTIVE

SCOPE

NZ 1.1

DEFINITIONS

CLASSIFICATION OF PROPERTY AS INVESTMENT PROPERTY OR OWNER-

OCCUPIED PROPERTY

RECOGNITION

MEASUREMENT AT RECOGNITION

MEASUREMENT AFTER RECOGNITION

Accounting policy

Fair value model

Cost model

TRANSFERS

DISPOSALS

DISCLOSURE

Fair value model and cost model

TRANSITIONAL PROVISIONS

EFFECTIVE DATE

WITHDRAWAL OF IAS 40 (2000)

NZ APPENDIX A

FRSB Basis for Conclusions – Reinstatement of the cost model option

HISTORY OF AMENDMENTS

The following is available within New Zealand on the XRB website as additional material

APPROVAL BY THE IASB OF IAS 40 ISSUED IN DECEMBER 2003

IASB BASIS FOR CONCLUSIONS ON IAS 40 (AS REVISED IN 2003)

IASC BASIS FOR CONCLUSIONS ON IAS 40 (2000)

NZ IAS 40

New Zealand Equivalent to International Accounting Standard 40 Investment Property (NZ IAS 40) is set out in

paragraphs 1–86. NZ IAS 40 is based on International Accounting Standard 40 Investment Property (IAS 40) (2003)

initially issued by the International Accounting Standards Committee (IASC) and subsequently revised by the

International Accounting Standards Board (IASB). All the paragraphs have equal authority but retain the IASC format

of the Standard when it was adopted by the IASB. NZ IAS 40 should be read in the context of its objective the IASC’s

and IASB’s Basis for Conclusions on IAS 40 and the New Zealand Equivalent to the IASB Conceptual Framework for

Financial Reporting (NZ Framework). NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and

Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

Any New Zealand additional material is shown with either “NZ” or “RDR” preceding the paragraph number.

NZ IAS 40

Introduction

The Standard prescribes the recognition and measurement of investment property and related disclosure requirements.

In adopting IAS 40 for application as NZ IAS 40 no changes have been made to the requirements of IAS 40 for Tier 1

for-profit entities. Where identified, disclosure concessions have been made available for Tier 2 for-profit entities.

Tier 1 for-profit entities that comply with NZ IAS 40 will simultaneously be in compliance with IAS 40.

Reduced Disclosure Regime

NZ IAS 40 includes RDR disclosure concessions and associated RDR paragraphs for entities that qualify for and elect

to apply Tier 2 for-profit accounting requirements in accordance with XRB A1 Application of the Accounting

Standards Framework. Entities that elect to report in accordance with Tier 2 accounting requirements are not required

to comply with paragraphs denoted with an asterisk (*) in this Standard. However, an entity is required to comply

with any RDR paragraph associated with a disclosure concession that is adopted.

NZ IAS 40

New Zealand Equivalent to International Accounting

Standard 40

Investment Property (NZ IAS 40)

Objective

1 The objective of this Standard is to prescribe the accounting treatment for investment property and related

disclosure requirements.

Scope

NZ 1.1 This Standard applies to Tier 1 and Tier 2 for-profit entities.

NZ 1.2 A Tier 2 entity is not required to comply with the disclosure requirements in this Standard denoted

with an asterisk (*). Where an entity elects to apply a disclosure concession it shall comply with any

RDR paragraphs associated with that concession.

2 This Standard shall be applied in the recognition, measurement and disclosure of investment

property.

3 Among other things, this Standard applies to the measurement in a lessee’s financial statements of

investment property interests held under a lease accounted for as a finance lease and to the measurement in a

lessor’s financial statements of investment property provided to a lessee under an operating lease. This

Standard does not deal with matters covered in NZ IAS 17 Leases, including:

(a) classification of leases as finance leases or operating leases;

(b) recognition of lease income from investment property (see also NZ IAS 18 Revenue);

as an operating lease;

(d) measurement in a lessor’s financial statements of its net investment in a finance lease;

(e) accounting for sale and leaseback transactions; and

(f) disclosure about finance leases and operating leases.

4 This Standard does not apply to:

(a) biological assets related to agricultural activity (see NZ IAS 41 Agriculture and NZ IAS 16 Property,

Plant and Equipment); and

(b) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

Definitions

5 The following terms are used in this Standard with the meanings specified:

Carrying amount is the amount at which an asset is recognised in the statement of financial position.

Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to

acquire an asset at the time of its acquisition or construction or, where applicable, the amount

attributed to that asset when initially recognised in accordance with the specific requirements of other

New Zealand equivalents to IFRSs, eg NZ IFRS 2 Share-based Payment.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. (See NZ IFRS 13 Fair

Value Measurement.)

Investment property is property (land or a building—or part of a building—or both) held (by the

owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather

than for:

(a) use in the production or supply of goods or services or for administrative purposes; or

(b) sale in the ordinary course of business.

NZ IAS 40

Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for

use in the production or supply of goods or services or for administrative purposes.

Classification of property as investment property or owner-occupied

property

6 A property interest that is held by a lessee under an operating lease may be classified and accounted

for as investment property if, and only if, the property would otherwise meet the definition of an

investment property and the lessee uses the fair value model set out in paragraphs 33–55 for the asset

recognised. This classification alternative is available on a property-by-property basis. However,

once this classification alternative is selected for one such property interest held under an operating

lease, all property classified as investment property shall be accounted for using the fair value model.

When this classification alternative is selected, any interest so classified is included in the disclosures

required by paragraphs 74–78.

7 Investment property is held to earn rentals or for capital appreciation or both. Therefore, an investment

property generates cash flows largely independently of the other assets held by an entity. This distinguishes

investment property from owner-occupied property. The production or supply of goods or services (or the use

of property for administrative purposes) generates cash flows that are attributable not only to property, but also

to other assets used in the production or supply process. NZ IAS 16 applies to owner-occupied property.

8 The following are examples of investment property:

(a) land held for long-term capital appreciation rather than for short-term sale in the ordinary course of

business.

(b) land held for a currently undetermined future use. (If an entity has not determined that it will use the

land as owner-occupied property or for short-term sale in the ordinary course of business, the land is

regarded as held for capital appreciation.)

or more operating leases.

(d) a building that is vacant but is held to be leased out under one or more operating leases.

(e) property that is being constructed or developed for future use as investment property.

9 The following are examples of items that are not investment property and are therefore outside the scope of

this Standard:

(a) property intended for sale in the ordinary course of business or in the process of construction or

development for such sale (see NZ IAS 2 Inventories), for example, property acquired exclusively

with a view to subsequent disposal in the near future or for development and resale.

(b) property being constructed or developed on behalf of third parties (see NZ IAS 11 Construction

Contracts).

use as owner-occupied property, property held for future development and subsequent use as owner-

occupied property, property occupied by employees (whether or not the employees pay rent at

market rates) and owner-occupied property awaiting disposal.

(d) [deleted by IASB]

(e) property that is leased to another entity under a finance lease.

10 Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion

that is held for use in the production or supply of goods or services or for administrative purposes. If these

portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the

portions separately. If the portions could not be sold separately, the property is investment property only if

an insignificant portion is held for use in the production or supply of goods or services or for administrative

purposes.

11 In some cases, an entity provides ancillary services to the occupants of a property it holds. An entity treats

such a property as investment property if the services are insignificant to the arrangement as a whole. An

example is when the owner of an office building provides security and maintenance services to the lessees

who occupy the building.

NZ IAS 40

12 In other cases, the services provided are significant. For example, if an entity owns and manages a hotel,

services provided to guests are significant to the arrangement as a whole. Therefore, an owner-managed

hotel is owner-occupied property, rather than investment property.

13 It may be difficult to determine whether ancillary services are so significant that a property does not qualify

as investment property. For example, the owner of a hotel sometimes transfers some responsibilities to third

parties under a management contract. The terms of such contracts vary widely. At one end of the spectrum,

the owner’s position may, in substance, be that of a passive investor. At the other end of the spectrum, the

owner may simply have outsourced day-to-day functions while retaining significant exposure to variation in

the cash flows generated by the operations of the hotel.

14 Judgement is needed to determine whether a property qualifies as investment property. An entity develops

criteria so that it can exercise that judgement consistently in accordance with the definition of investment

property and with the related guidance in paragraphs 7–13. Paragraph 75(c) requires an entity to disclose

these criteria when classification is difficult.

14A Judgement is also needed to determine whether the acquisition of investment property is the acquisition of

an asset or a group of assets or a business combination within the scope of NZ IFRS 3 Business

Combinations. Reference should be made to NZ IFRS 3 to determine whether it is a business combination.

The discussion in paragraphs 7–14 of this Standard relates to whether or not property is owner-occupied

property or investment property and not to determining whether or not the acquisition of property is a

business combination as defined in NZ IFRS 3. Determining whether a specific transaction meets the

definition of a business combination as defined in NZ IFRS 3 and includes an investment property as

defined in this Standard requires the separate application of both Standards.

15 In some cases, an entity owns property that is leased to, and occupied by, its parent or another subsidiary.

The property does not qualify as investment property in the consolidated financial statements, because the

property is owner-occupied from the perspective of the group. However, from the perspective of the entity

that owns it, the property is investment property if it meets the definition in paragraph 5. Therefore, the

lessor treats the property as investment property in its individual financial statements.

Recognition

16 Investment property shall be recognised as an asset when, and only when:

(a) it is probable that the future economic benefits that are associated with the investment

property will flow to the entity; and

(b) the cost of the investment property can be measured reliably.

17 An entity evaluates under this recognition principle all its investment property costs at the time they are

incurred. These costs include costs incurred initially to acquire an investment property and costs incurred

subsequently to add to, replace part of, or service a property.

18 Under the recognition principle in paragraph 16, an entity does not recognise in the carrying amount of an

investment property the costs of the day-to-day servicing of such a property. Rather, these costs are

recognised in profit or loss as incurred. Costs of day-to-day servicing are primarily the cost of labour and

consumables, and may include the cost of minor parts. The purpose of these expenditures is often described

as for the ‘repairs and maintenance’ of the property.

19 Parts of investment properties may have been acquired through replacement. For example, the interior walls

may be replacements of original walls. Under the recognition principle, an entity recognises in the carrying

amount of an investment property the cost of replacing part of an existing investment property at the time

that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced

is derecognised in accordance with the derecognition provisions of this Standard.

Measurement at recognition

20 An investment property shall be measured initially at its cost. Transaction costs shall be included in

the initial measurement.

21 The cost of a purchased investment property comprises its purchase price and any directly attributable

expenditure. Directly attributable expenditure includes, for example, professional fees for legal services,

property transfer taxes and other transaction costs.

22 [Deleted by IASB]

NZ IAS 40

23 The cost of an investment property is not increased by:

(a) start-up costs (unless they are necessary to bring the property to the condition necessary for it to be

capable of operating in the manner intended by management),

(b) operating losses incurred before the investment property achieves the planned level of occupancy, or

developing the property.

24 If payment for an investment property is deferred, its cost is the cash price equivalent. The difference

between this amount and the total payments is recognised as interest expense over the period of credit.

25 The initial cost of a property interest held under a lease and classified as an investment property shall

be as prescribed for a finance lease by paragraph 20 of NZ IAS 17, ie the asset shall be recognised at

the lower of the fair value of the property and the present value of the minimum lease payments. An

equivalent amount shall be recognised as a liability in accordance with that same paragraph.

26 Any premium paid for a lease is treated as part of the minimum lease payments for this purpose, and is

therefore included in the cost of the asset, but is excluded from the liability. If a property interest held under

a lease is classified as investment property, the item accounted for at fair value is that interest and not the

underlying property. Guidance on measuring the fair value of a property interest is set out for the fair value

model in paragraphs 33–35, 41, 41, 48, 50 and 52 and in NZ IFRS 13. That guidance is also relevant to the

measurement of fair value when that value is used as cost for initial recognition purposes.

27 One or more investment properties may be acquired in exchange for a non-monetary asset or assets, or a

combination of monetary and non-monetary assets. The following discussion refers to an exchange of one

non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The

cost of such an investment property is measured at fair value unless (a) the exchange transaction lacks

commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably

measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise

the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying

amount of the asset given up.

28 An entity determines whether an exchange transaction has commercial substance by considering the extent

to which its future cash flows are expected to change as a result of the transaction. An exchange transaction

has commercial substance if:

(a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the

configuration of the cash flows of the asset transferred, or

(b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes

as a result of the exchange, and

For the purpose of determining whether an exchange transaction has commercial substance, the entity-

specific value of the portion of the entity’s operations affected by the transaction shall reflect post-tax cash

flows. The result of these analyses may be clear without an entity having to perform detailed calculations.

29 The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value

measurements is not significant for that asset or (b) the probabilities of the various estimates within the

range can be reasonably assessed and used when measuring fair value. If the entity is able to measure

reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given

up is used to measure cost unless the fair value of the asset received is more clearly evident.

Measurement after recognition

Accounting policy

30 With the exceptions noted in paragraphs 32A and 34, an entity shall choose as its accounting policy

either the fair value model in paragraphs 33–35 or the cost model in paragraph 56 and shall apply

that policy to all of its investment property.

31 NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors states that a voluntary change

in accounting policy shall be made only if the change results in the financial statements providing reliable

and more relevant information about the effects of transactions, other events or conditions on the entity’s

financial position, financial performance or cash flows. It is highly unlikely that a change from the fair

value model to the cost model will result in a more relevant presentation.

NZ IAS 40

32 This Standard requires all entities to measure the fair value of investment property, for the purpose of either

measurement (if the entity uses the fair value model) or disclosure (if it uses the cost model). An entity is

encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by

an independent valuer who holds a recognised and relevant professional qualification and has recent

experience in the location and category of the investment property being valued.

32A An entity may:

(a) choose either the fair value model or the cost model for all investment property backing

liabilities that pay a return linked directly to the fair value of, or returns from, specified assets

including that investment property; and

(b) choose either the fair value model or the cost model for all other investment property,

regardless of the choice made in (a).

32B Some insurers and other entities operate an internal property fund that issues notional units, with some units

held by investors in linked contracts and others held by the entity. Paragraph 32A does not permit an entity

to measure the property held by the fund partly at cost and partly at fair value.

32C If an entity chooses different models for the two categories described in paragraph 32A, sales of investment

property between pools of assets measured using different models shall be recognised at fair value and the

cumulative change in fair value shall be recognised in profit or loss. Accordingly, if an investment property

is sold from a pool in which the fair value model is used into a pool in which the cost model is used, the

property’s fair value at the date of the sale becomes its deemed cost.

Fair value model

33 After initial recognition, an entity that chooses the fair value model shall measure all of its investment

property at fair value, except in the cases described in paragraph 53.

34 When a property interest held by a lessee under an operating lease is classified as an investment

property under paragraph 6 the fair value model shall be applied.

35 A gain or loss arising from a change in the fair value of investment property shall be recognised in

profit or loss for the period in which it arises.

36–39 [Deleted by IASB]

40 When measuring the fair value of investment property in accordance with NZ IFRS 13, an entity shall

ensure that the fair value reflects, among other things, rental income from current leases and other

assumptions that market participants would use when pricing the investment property under current market

conditions.

41 Paragraph 25 specifies the basis for initial recognition of the cost of an interest in a leased property.

Paragraph 33 requires the interest in the leased property to be remeasured, if necessary, to fair value. In a

lease negotiated at market rates, the fair value of an interest in a leased property at acquisition, net of all

expected lease payments (including those relating to recognised liabilities), should be zero. This fair value

does not change regardless of whether, for accounting purposes, a leased asset and liability are recognised at

fair value or at the present value of minimum lease payments, in accordance with paragraph 20 of

NZ IAS 17. Thus, remeasuring a leased asset from cost in accordance with paragraph 25 to fair value in

accordance with paragraph 33 should not give rise to any initial gain or loss, unless fair value is measured at

different times. This could occur when an election to apply the fair value model is made after initial

recognition.

42–47 [Deleted by IASB]

48 In exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an

existing property first becomes investment property after a change in use) that the variability in the range of

reasonable fair value measuremens will be so great, and the probabilities of the various outcomes so difficult to

assess, that the usefulness of a single measure of fair value is negated. This may indicate that the fair value of

the property will not be reliably measureable on a continuing basis (see paragraph 53).

49 [Deleted by IASB]

50 In determining the carrying amount of investment property under the fair value model, an entity does not

double-count assets or liabilities that are recognised as separate assets or liabilities. For example:

(a) equipment such as lifts or air-conditioning is often an integral part of a building and is generally

included in the fair value of the investment property, rather than recognised separately as property, plant

and equipment.

NZ IAS 40

(b) if an office is leased on a furnished basis, the fair value of the office generally includes the fair value

of the furniture, because the rental income relates to the furnished office. When furniture is included

in the fair value of investment property, an entity does not recognise that furniture as a separate asset.

the entity recognises it as a separate liability or asset.

(d) the fair value of investment property held under a lease reflects expected cash flows (including

contingent rent that is expected to become payable). Accordingly, if a valuation obtained for a

property is net of all payments expected to be made, it will be necessary to add back any recognised

lease liability, to arrive at the carrying amount of the investment property using the fair value model.

51 [Deleted by IASB]

52 In some cases, an entity expects that the present value of its payments relating to an investment property

(other than payments relating to recognised liabilities) will exceed the present value of the related cash

receipts. An entity applies NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets to

determine whether to recognise a liability and, if so, how to measure it.

Inability to measure fair value reliably

53 There is a rebuttable presumption that an entity can reliably measure the fair value of an investment

property on a continuing basis. However, in exceptional cases, there is clear evidence when an entity

first acquires an investment property (or when an existing property first becomes investment property

after a change in use) that the fair value of the investment property is not reliably measurable on a

continuing basis. This arises when, and only when, the market for comparable properties is inactive

(eg there are few recent transactions, price quotations are not current or observed transaction prices

indicate that the seller was forced to sell) and alternative reliable measurements of fair value (for

example, based on discounted cash flow projections) are not available. If an entity determines that the

fair value of an investment property under construction is not reliably measurable but expects the fair

value of the property to be reliably measurable when construction is complete, it shall measure that

investment property under construction at cost until either its fair value becomes reliably measurable or

construction is completed (whichever is earlier). If an entity determines that the fair value of an

investment property (other than an investment property under construction) is not reliably measurable

on a continuing basis, the entity shall measure that investment property using the cost model in

NZ IAS 16. The residual value of the investment property shall be assumed to be zero. The entity shall

apply NZ IAS 16 until disposal of the investment property.

53A Once an entity becomes able to measure reliably the fair value of an investment property under construction

that has previously been measured at cost, it shall measure that property at its fair value. Once construction

of that property is complete, it is presumed that fair value can be measured reliably. If this is not the case, in

accordance with paragraph 53, the property shall be accounted for using the cost model in accordance with

NZ IAS 16.

53B The presumption that the fair value of investment property under construction can be measured reliably can

be rebutted only on initial recognition. An entity that has measured an item of investment property under

construction at fair value may not conclude that the fair value of the completed investment property cannot

be measured reliably.

54 In the exceptional cases when an entity is compelled, for the reason given in paragraph 53, to measure an

investment property using the cost model in accordance with NZ IAS 16, it measures at fair value all its other

investment property, including investment property under construction. In these cases, although an entity may

use the cost model for one investment property, the entity shall continue to account for each of the remaining

properties using the fair value model.

55 If an entity has previously measured an investment property at fair value, it shall continue to measure

the property at fair value until disposal (or until the property becomes owner-occupied property or

the entity begins to develop the property for subsequent sale in the ordinary course of business) even

if comparable market transactions become less frequent or market prices become less readily

available.

Cost model

56 After initial recognition, an entity that chooses the cost model shall measure all of its investment

properties in accordance with NZ IAS 16’s requirements for that model, other than those that meet

the criteria to be classified as held for sale (or are included in a disposal group that is classified as held

for sale) in accordance with NZ IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

NZ IAS 40

Investment properties that meet the criteria to be classified as held for sale (or are included in a

disposal group that is classified as held for sale) shall be measured in accordance with NZ IFRS 5.

Transfers

57 Transfers to, or from, investment property shall be made when, and only when, there is a change in

use, evidenced by:

(a) commencement of owner-occupation, for a transfer from investment property to owner-

occupied property;

(b) commencement of development with a view to sale, for a transfer from investment property to

inventories;

(d) commencement of an operating lease to another party, for a transfer from inventories to

investment property.

(e) [deleted by IASB]

58 Paragraph 57(b) requires an entity to transfer a property from investment property to inventories when, and

only when, there is a change in use, evidenced by commencement of development with a view to sale.

When an entity decides to dispose of an investment property without development, it continues to treat the

property as an investment property until it is derecognised (eliminated from the statement of financial

position) and does not treat it as inventory. Similarly, if an entity begins to redevelop an existing investment

property for continued future use as investment property, the property remains an investment property and is

not reclassified as owner-occupied property during the redevelopment.

59 Paragraphs 60–65 apply to recognition and measurement issues that arise when an entity uses the fair value

model for investment property. When an entity uses the cost model, transfers between investment property,

owner-occupied property and inventories do not change the carrying amount of the property transferred and

they do not change the cost of that property for measurement or disclosure purposes.

60 For a transfer from investment property carried at fair value to owner-occupied property or

inventories, the property’s deemed cost for subsequent accounting in accordance with NZ IAS 16 or

NZ IAS 2 shall be its fair value at the date of change in use.

61 If an owner-occupied property becomes an investment property that will be carried at fair value, an

entity shall apply NZ IAS 16 up to the date of change in use. The entity shall treat any difference at

that date between the carrying amount of the property in accordance with NZ IAS 16 and its fair

value in the same way as a revaluation in accordance with NZ IAS 16.

62 Up to the date when an owner-occupied property becomes an investment property carried at fair value, an

entity depreciates the property and recognises any impairment losses that have occurred. The entity treats

any difference at that date between the carrying amount of the property in accordance with NZ IAS 16 and

its fair value in the same way as a revaluation in accordance with NZ IAS 16. In other words:

(a) any resulting decrease in the carrying amount of the property is recognised in profit or loss.

However, to the extent that an amount is included in revaluation surplus for that property, the

decrease is recognised in other comprehensive income and reduces the revaluation surplus within

equity.

(b) any resulting increase in the carrying amount is treated as follows:

(i) to the extent that the increase reverses a previous impairment loss for that property, the

increase is recognised in profit or loss. The amount recognised in profit or loss does not

exceed the amount needed to restore the carrying amount to the carrying amount that would

have been determined (net of depreciation) had no impairment loss been recognised.

(ii) any remaining part of the increase is recognised in other comprehensive income and increases

the revaluation surplus within equity. On subsequent disposal of the investment property, the

revaluation surplus included in equity may be transferred to retained earnings. The transfer

from revaluation surplus to retained earnings is not made through profit or loss.

63 For a transfer from inventories to investment property that will be carried at fair value, any

difference between the fair value of the property at that date and its previous carrying amount shall

be recognised in profit or loss.

NZ IAS 40

64 The treatment of transfers from inventories to investment property that will be carried at fair value is

consistent with the treatment of sales of inventories.

65 When an entity completes the construction or development of a self-constructed investment property

that will be carried at fair value, any difference between the fair value of the property at that date and

its previous carrying amount shall be recognised in profit or loss.

Disposals

66 An investment property shall be derecognised (eliminated from the statement of financial position) on

disposal or when the investment property is permanently withdrawn from use and no future economic

benefits are expected from its disposal.

67 The disposal of an investment property may be achieved by sale or by entering into a finance lease. In

determining the date of disposal for investment property, an entity applies the criteria in NZ IAS 18 for

recognising revenue from the sale of goods and considers the related guidance in the illustrative examples

accompanying NZ IAS 18. NZ IAS 17 applies to a disposal effected by entering into a finance lease and to

a sale and leaseback.

68 If, in accordance with the recognition principle in paragraph 16, an entity recognises in the carrying amount

of an asset the cost of a replacement for part of an investment property, it derecognises the carrying amount of

the replaced part. For investment property accounted for using the cost model, a replacement may not be a part

that was depreciated separately. If it is not practicable for an entity to determine the carrying amount of the

replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at

the time it was acquired or constructed. Under the fair value model, the fair value of the investment property

may already reflect that the part to be replaced has lost its value. In other cases it may be difficult to discern

how much fair value should be reduced for the part being replaced. An alternative to reducing fair value for the

replaced part, when it is not practical to do so, is to include the cost of the replacement in the carrying amount

of the asset and then to reassess the fair value, as would be required for additions not involving replacement.

69 Gains or losses arising from the retirement or disposal of investment property shall be determined as

the difference between the net disposal proceeds and the carrying amount of the asset and shall be

recognised in profit or loss (unless NZ IAS 17 requires otherwise on a sale and leaseback) in the

period of the retirement or disposal.

70 The consideration receivable on disposal of an investment property is recognised initially at fair value. In

particular, if payment for an investment property is deferred, the consideration received is recognised

initially at the cash price equivalent. The difference between the nominal amount of the consideration and

the cash price equivalent is recognised as interest revenue in accordance with NZ IAS 18 using the effective

interest method.

71 An entity applies NZ IAS 37 or other Standards, as appropriate, to any liabilities that it retains after disposal

of an investment property.

72 Compensation from third parties for investment property that was impaired, lost or given up shall be

recognised in profit or loss when the compensation becomes receivable.

73 Impairments or losses of investment property, related claims for or payments of compensation from third

parties and any subsequent purchase or construction of replacement assets are separate economic events and

are accounted for separately as follows:

(a) impairments of investment property are recognised in accordance with NZ IAS 36;

(b) retirements or disposals of investment property are recognised in accordance with paragraphs 66–71

of this Standard;

recognised in profit or loss when it becomes receivable; and

(d) the cost of assets restored, purchased or constructed as replacements is determined in accordance

with paragraphs 20–29 of this Standard.

NZ IAS 40

Disclosure

Fair value model and cost model

74 The disclosures below apply in addition to those in NZ IAS 17. In accordance with NZ IAS 17, the owner

of an investment property provides lessors’ disclosures about leases into which it has entered. An entity that

holds an investment property under a finance or operating lease provides lessees’ disclosures for finance

leases and lessors’ disclosures for any operating leases into which it has entered.

75 An entity shall disclose:

(a) whether it applies the fair value model or the cost model.

*(b) if it applies the fair value model, whether, and in what circumstances, property interests held

under operating leases are classified and accounted for as investment property.

*(c) when classification is difficult (see paragraph 14), the criteria it uses to distinguish investment

property from owner-occupied property and from property held for sale in the ordinary course

of business.

(d) [deleted by IASB]

(e) the extent to which the fair value of investment property (as measured or disclosed in the

financial statements) is based on a valuation by an independent valuer who holds a recognised

and relevant professional qualification and has recent experience in the location and category

of the investment property being valued. If there has been no such valuation, that fact shall be

disclosed.

*(f) the amounts recognised in profit or loss for:

(i) rental income from investment property;

(ii) direct operating expenses (including repairs and maintenance) arising from investment

property that generated rental income during the period;

(iii) direct operating expenses (including repairs and maintenance) arising from investment

property that did not generate rental income during the period; and

(iv) the cumulative change in fair value recognised in profit or loss on a sale of investment

property from a pool of assets in which the cost model is used into a pool in which the

fair value model is used (see paragraph 32C).

(g) the existence and amounts of restrictions on the realisability of investment property or the

remittance of income and proceeds of disposal.

(h) contractual obligations to purchase, construct or develop investment property or for repairs,

maintenance or enhancements.

Fair value model

76 In addition to the disclosures required by paragraph 75, an entity that applies the fair value model in

paragraphs 33–55 shall disclose a reconciliation between the carrying amounts of investment property

at the beginning and end of the period, showing the following:

(a) additions, disclosing separately those additions resulting from acquisitions and those resulting

from subsequent expenditure recognised in the carrying amount of an asset;

(b) additions resulting from acquisitions through business combinations;

accordance with NZ IFRS 5 and other disposals;

(d) net gains or losses from fair value adjustments;

*(e) the net exchange differences arising on the translation of the financial statements into a different

presentation currency, and on translation of a foreign operation into the presentation currency of

the reporting entity;

(f) transfers to and from inventories and owner-occupied property; and

(g) other changes.

RDR 76.1 A Tier 2 entity is not required to disclose the reconciliation specified in paragraph 76 for prior

periods.

NZ IAS 40

RDR 76.2 A Tier 2 entity is not required to disclose separately those additions resulting from acquisitions and

those resulting from subsequent expenditure recognised in the carrying amount of an asset in

accordance with paragraph 76(a).

*77 When a valuation obtained for investment property is adjusted significantly for the purpose of the

financial statements, for example to avoid double-counting of assets or liabilities that are recognised

as separate assets and liabilities as described in paragraph 50, the entity shall disclose a reconciliation

between the valuation obtained and the adjusted valuation included in the financial statements,

showing separately the aggregate amount of any recognised lease obligations that have been added

back, and any other significant adjustments.

78 In the exceptional cases referred to in paragraph 53, when an entity measures investment property

using the cost model in NZ IAS 16, the reconciliation required by paragraph 76 shall disclose amounts

relating to that investment property separately from amounts relating to other investment property.

In addition, an entity shall disclose:

(a) a description of the investment property;

(b) an explanation of why fair value cannot be measured reliably;

(d) on disposal of investment property not carried at fair value:

(i) the fact that the entity has disposed of investment property not carried at fair value;

(ii) the carrying amount of that investment property at the time of sale; and

(iii) the amount of gain or loss recognised.

Cost model

79 In the exceptional cases described in paragraph 53, when an entity cannot determine the fair value of

the investment property reliably and measures that investment property using the cost model in

NZ IAS 16, it shall also disclose:

(a) the depreciation methods used;

(b) the useful lives or the depreciation rates used; and

impairment losses) at the beginning and end of the period.

(d) a reconciliation of the carrying amount of investment property at the beginning and end of the

period, showing the following:

(i) additions, disclosing separately those additions resulting from acquisitions and those

resulting from subsequent expenditure recognised as an asset;

(ii) additions resulting from acquisitions through business combinations;

(iii) assets classified as held for sale or included in a disposal group classified as held for sale

in accordance with NZ IFRS 5 and other disposals;

(iv) depreciation;

(v) the amount of impairment losses recognised, and the amount of impairment losses

reversed, during the period in accordance with NZ IAS 36;

*(vi) the net exchange differences arising on the translation of the financial statements into a

different presentation currency, and on translation of a foreign operation into the

presentation currency of the reporting entity;

*(vii) transfers to and from inventories and owner-occupied property; and

(viii) other changes;

*(e) the fair value of investment property. In the exceptional cases described in paragraph 53, when

an entity cannot measure the fair value of the investment property reliably, it shall disclose:

(i) a description of the investment property;

(ii) an explanation of why fair value cannot be measured reliably; and

(iii) if possible, the range of estimates within which fair value is highly likely to lie.

NZ IAS 40

RDR 79.1 A Tier 2 entity is not required to disclose separately those additions resulting from acquisitions and

those resulting from subsequent expenditure recognised in the carrying amount of an asset in

accordance with paragraph 79(d)(i).

Transitional provisions

80–84 [Paragraphs 80 to 84 have not been reproduced. The transitional provisions in IAS 40 are not applicable to

entities adopting NZ IAS 40].

Business Combinations

84A Annual Improvements Cycle 2011–2013 issued in December 2013 added paragraph 14A and a heading

before paragraph 6. An entity shall apply that amendment prospectively for acquisitions of

investment property from the beginning of the first period for which it adopts that amendment.

Consequently, accounting for acquisitions of investment property in prior periods shall not be

adjusted. However, an entity may choose to apply the amendment to individual acquisitions of

investment property that occurred prior to the beginning of the first annual period occurring on or

after the effective date if, and only if, information needed to apply the amendment to those earlier

transactions is available to the entity.

Effective date

85 This Standard becomes operative for an entity’s financial statements that cover annual accounting periods

beginning on or after 1 January 2007. Early adoption of this Standard is permitted only when an entity

complies with NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial

Reporting Standards for an annual accounting period beginning on or after 1 January 2005.

85A NZ IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used

throughout New Zealand equivalents to IFRSs. In addition it amended paragraph 62. An entity shall apply

those amendments for annual periods beginning on or after 1 January 2009. If an entity applies NZ IAS 1

(revised 2007) for an earlier period, the amendments shall be applied for that earlier period.

85B Paragraphs 8, 9, 48, 53, 54 and 57 were amended, paragraph 22 was deleted and paragraphs 53A and 53B

were added by Improvements to NZ IFRSs issued in June 2008. An entity shall apply those amendments

prospectively for annual periods beginning on or after 1 January 2009. An entity is permitted to apply the

amendments to investment property under construction from any date before 1 January 2009 provided that

the fair values of investment properties under construction were measured at those dates. Earlier application

is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact and at the

same time apply the amendments to paragraphs 5 and 81E of NZ IAS 16 Property, Plant and Equipment.

NZ 85B.1 Harmonisation Amendments, issued in April 2011, amended paragraphs NZ 4.1, 30–33, 56, 59, 68, 75

and 79 and deleted paragraphs NZ 33.1, NZ 33.2 and NZ 75.1. These amendments shall be applied for

annual reporting periods beginning on or after 1 July 2011. Early application is permitted. If an entity

applies these amendments for an earlier period it shall disclose that fact and also apply the relevant

amendments to NZ IAS 16 Property, Plant and Equipment for the same period.

85C NZ IFRS 13, issued in June 2011, amended the definition of fair value in paragraph 5, amended paragraphs 26,

29, 32, 40, 48, 53, 53B, 78–80 and 85B and deleted paragraphs 36–39, 42–47, 49, 51 and 75(d). An entity shall

apply those amendments when it applies NZ IFRS 13.

NZ 85C.1 Framework: Tier 1 and Tier 2 For-profit Entities, issued in November 2012, amended extant

NZ IFRSs by deleting any public benefit entity paragraphs, deleting any differential reporting

concessions, adding scope paragraphs for Tier 1 and Tier 2 for-profit entities and adding disclosure

concessions for Tier 2 entities. It made no changes to the requirements for Tier 1 entities. A Tier 2 entity

may elect to apply the disclosure concessions for annual periods beginning on or after 1 December 2012.

Early application is permitted.

85D Annual Improvements Cycle 2011–2013 issued in February 2014 added headings before paragraph 6 and

after paragraph 84 and added paragraphs 14A and 84A. An entity shall apply those amendments for annual

periods beginning on or after 1 July 2014. Earlier application is permitted. If an entity applies those

amendments for an earlier period it shall disclose that fact.

NZ IAS 40

Withdrawal of IAS 40 (2000)

86 [Paragraph 86 is not reproduced. The withdrawal of previous IASB pronouncements is not relevant to this

Standard.]

NZ IAS 40

Appendix A

FRSB Basis for Conclusions – Reinstatement of the cost model

option

This Basis for Conclusions accompanies, but is not part of, NZ IAS 40.

NZBC1 The FRSB has reintroduced the option in IAS 40 Investment Property to permit the use of the cost model to

account for investment property. Limiting the measurement of investment property to the fair value model

maintained consistency with the previous requirements of SSAP-17 Accounting for Investment Properties

and Properties Intended for Sale. The FRSB sought constituents’ views on the proposal to reintroduce the

cost model in ED 121 Proposals to Harmonise Australian and New Zealand Standards in Relation to

Entities Applying IFRSs as Adopted in Australia and New Zealand. The FRSB, after considering the

feedback from constituents, confirmed the proposal to reintroduce the cost model to account for investment

property, noting that harmonisation with IFRSs and Australian Accounting Standards outweighs the

historical preference of not allowing the cost model option for valuing investment property.

NZBC2 In reaching its view to reintroduce the cost model, the FRSB noted the requirements in paragraph 14 of

NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors regarding changes in

accounting policies.

NZBC3 An entity can change an accounting policy only if the policy is (a) required by an NZ IFRS, or (b) results in

the financial statements providing reliable and more relevant information about the effects of transactions,

other events or conditions on the entity’s financial position, financial performance or cash flows. This

means that an entity can revert from the fair value model to the cost model only when the requirements of

paragraph 14 can be met.

NZ IAS 40

HISTORY OF AMENDMENTS

Table of Pronouncements – NZ IAS 40 Investment Property

This table lists the pronouncements establishing and substantially amending NZ IAS 40. The table is based on

amendments approved as at 31 December 2015 other than consequential amendments resulting from early adoption of

NZ IFRS 15 Revenue from Contracts with Customers.

Pronouncements

Date

approved

Early operative

date

Effective date

(annual reporting

periods… on or

after …)

NZ IAS 40 Property, Plant and Equipment

Nov 2004

1 Jan 2005

Early application

encouraged

1 Jan 2007

Omnibus Amendments (2006-01)

Dec 2006

Early application

encouraged

1 Jan 2007

NZ IAS 1 Presentation of Financial Statements

(revised 2007)

Nov 2007

Early application

encouraged

1 Jan 2009

Improvements to NZ IFRSs

June 2008

Early application

permitted

1 Jan 2009

Minor Amendments to NZ IFRSs

July 2010

Immediate

Harmonisation Amendments

Apr 2011

Early application

permitted

1 July 2011

NZ IFRS 13 Fair Value Measurement

June 2011

Early application

permitted

1 Jan 2013

Framework: Tier 1 and Tier 2 For-profit Entities

Nov 2012

Early application

permitted

1 Dec 2012

Annual Improvements to NZ IFRSs 2011-2013 Cycle

Feb 2014

Early application

permitted

1 July 2014

Agriculture: Bearer Plants (Amendments to NZ IAS 16 and

NZ IAS 41)

Aug 2014

Early application

permitted

1 Jan 2016

Table of Amended Paragraphs in NZ IAS 40

Paragraph affected

How affected

By … [date]

Paragraph 4

Amended

Agriculture: Bearer Plants [Aug 2014]

Paragraph NZ 4.1

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 5

Amended

NZ IFRS 13 [June 2011]

Paragraph 7

Amended

Agriculture: Bearer Plants [Aug 2014]

Paragraph 8

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 9

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 14A

Added

Annual Improvements to NZ IFRSs 2011-2013 Cycle [Feb 2014]

Paragraph 22

Deleted

Improvements to NZ IFRSs [June 2008]

Paragraph 26

Amended

NZ IFRS 13 [June 2011]

Paragraph 29

Amended

NZ IFRS 13 [June 2011]

This pronouncement amended extant NZ IFRSs by (i) deleting any public benefit entity paragraphs, (ii) deleting any differential

reporting paragraphs, (iii) adding scope paragraphs for Tier 1 and Tier 2 for-profit entities, and (iv) adding RDR disclosure concessions.

NZ IAS 40

Table of Amended Paragraphs in NZ IAS 40

Paragraph affected

How affected

By … [date]

Paragraphs 30–33

Amended/Added

Harmonisation Amendments [Apr 2011]

Paragraph 32

Amended

NZ IFRS 13 [June 2011]

Paragraph NZ 33.1

Amended

Omnibus Amendments (2006-01) [Dec 2006]

Paragraphs NZ 33.1 and

NZ 33.2

Deleted

Harmonisation Amendments [Apr 2011]

Paragraphs 36–39

Deleted

NZ IFRS 13 [June 2011]

Paragraph 40

Amended

NZ IFRS 13 [June 2011]

Paragraphs 42–47

Deleted

NZ IFRS 13 [June 2011]

Paragraph 48

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 49

Deleted

NZ IFRS 13 [June 2011]

Paragraph 50

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 51

Deleted

NZ IFRS 13 [June 2011]

Paragraph 53

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 53 and the

preceding heading

Amended

NZ IFRS 13 [June 2011]

Paragraph 53A

Added

Improvements to NZ IFRSs [June 2008]

Paragraph 53B

Added

Improvements to NZ IFRSs [June 2008]

Paragraph 53B

Amended

NZ IFRS 13 [June 2011]

Paragraph 54

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 56

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 57

Amended

Improvements to NZ IFRSs [June 2008]

Paragraph 59

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 62

Amended

NZ IAS 1 [Nov 2007]

Paragraph 68

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 75

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 75(d)

Deleted

NZ IFRS 13 [June 2011]

Paragraph NZ 75.1

Deleted

Harmonisation Amendments [Apr 2011]

Paragraph 78

Amended

NZ IFRS 13 [June 2011]

Paragraph 79

Amended

Harmonisation Amendments [Apr 2011]

Paragraph 79

Amended

NZ IFRS 13 [June 2011]

Paragraph 80

Amended

NZ IFRS 13 [June 2011]

Paragraph 84A

Added

Annual Improvements to NZ IFRSs 2011-2013 Cycle [Feb 2014]

Paragraph 85A

Added

NZ IAS 1 [Nov 2007]

Paragraph 85B

Added

Improvements to NZ IFRSs [June 2008]

Paragraph 85B

Amended

NZ IFRS 13 [June 2011]

Paragraphs NZ 85B.1

Added

Harmonisation Amendments [Apr 2011]

Paragraph 85C

Added

NZ IFRS 13 [June 2011]

Paragraph NZ 85C.1

Added

Framework: Tier 1 and Tier 2 For-profit Entities [Nov 2012]

Paragraph 85D

Added

Annual Improvements to NZ IFRSs 2011-2013 Cycle [Feb 2014]

Appendix A

Added

Harmonisation Amendments [Apr 2011]