IAS 40 – Investment Property

An investment property is land or buildings or both, that is held by an entity to earn rentals and/or for its capital appreciation potential.

One of the distinguishing characteristics of investment property is that it generates cash flows largely independent of the other assets held by an entity.

The following are not investment property:

  • Property held for sale in the ordinary course of business or in the process of construction or development for such sale
  • Owner-occupied property, including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal
  • Property leased to another entity under a finance lease


Investment property is recognized when:

  • It is probable that future economic benefits will flow to the entity, and
  • The cost can be measured reliably

Measurement at recognition

Investment property should be measured initially at cost, including directly attributable expenditure and transaction costs.

Measurement after recognition

After recognition, entities can choose between two models:

  • The fair value model – any movement in FV should be taken to P/L, therefore no need to depreciate
  • The cost model – exact same treatment under IAS 16

Whatever policy an entity chooses should be applied to all of its investment property.

Example 1

  • An entity has a factory that has been shut down due to chemical contamination, worker unrest and strike. The entity plans to sell this factory.
  • An entity has purchased a building that it intends to lease out under an operating lease.
  • An entity operates in the fashion industry and owns a number of prestigious apartments, which it leases to famous persons who are under a contract of employment to promote its fashion clothing.

Solution 1

  • The factory is not an investment property. It should be classified as property held for sale and accounted for under IFRS 5.
  • The building would qualify as an investment property under IAS 40, as the entity intends to earn rentals from it under an operating lease.
  • The apartments are leased to persons who are under contract to the company. Therefore they cannot be classified as investment property. IAS 40 specifically states that property occupied by employees is not investment property.