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If a part of the investment property is occupied by an employee of the company owning the property, how will that affect the classification of the property as an investment property?
I realise that an investment property cannot be owner occupied, however, what I am not sure about, what if it is only a part of the property that is occupied by employees, is it possible in accounting terms to present this part as PPE and the rest as investment properties in the financials? Or how will we reflect that?
The second question is, if the employees occupying this part pay the same rent as the rest of the customers, I think in this case the fact that they are employees does not matter. Am I correct?
Thanks,
Hi,
I presume that the employees are renting the property for their own personal usage, so therefore the company would treat the property as IP.
Owner occupied property treated as IP tends to arise in group accounts where the parent rents the property to the subsidiary. In P’s individual accounts it would be IP but in the group accounts it would be owner occupied as the group occupies it and treated as PPE.
The market rental payments are not an issue.
Thanks
sorry, but i strongly disagree with the assumption that employee occupied property is to be classified as an investment property, this is an extract from ias plus:
The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and 40.9]
property held for use in the production or supply of goods or services or for administrative purposes property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories) property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts) owner-occupied property (IAS 16 Property, Plant and Equipment), 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
Hi,
Assumptions are open to different interpretations based on the information presented.
From what I interpret the property was rented out to an employee for their own personal usage, as at the bottom of the question it talks about the employee paying a rental to the company. Why would an employee of a company be employed by a company and then the company expect the employee to rent their place of work from the company too?
My assumption is therefore that the property is being leased by the employee for some form of personal usage, possibly to live in and therefore it is not owner-occupied. If it is not owner occupied then it will be IP.
You could interpret it as possibly the way you’ve done by saying that the employee is in the property and it is where they are carrying out their working duties. In this case yes it would be owner-occupied as per the standard and therefore by treated as IP.
Hope this clears up any misunderstanding.
Thanks
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