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According to IAS 16 property,plant and equipment are tangible items that are held for use in the production or supply of goods and services , for rental to others , or for administrative expenses.
Whereas IAS 40 defines investment property as those which are held to earn rentals or for capital appreciation or both.
As per their definitions rental property can be classified as both , so how do we recognise those?????
If your business is renting properties then it’s IAS 16
If your business is manufacturing catamarans but the company happens to own an area of land that it rents out to a local farmer, then it’s IAS 40
OK?
so as per your ans above..the properties obtained under operating lease agreement..can be accounted both ,under IAS 40 and IAS 16 for the lessor based on the scenarios?
IAS 17 Leases “assets held for operating leases should be presented in the balance sheet of the lessor according to the nature of the asset.”
IAS 40 Investment Property “The following are not investment property and, therefore, are outside the scope of IAS 40:
property leased to another entity under a finance lease”
So, in answer to your specific question, assets held for lease under operating leases should be shown as PPE, or Land and Buildings, or Motor Vehicles, or whatever the general title for that type of asset may be. It is not to be shown as Investment Property
OK?
but still lessor according to the nature of the asset can classify an operating lease asset under IAS 40…as IAS 40 only excludes assets under finance lease…. am I right with this????
I repeat, from above “IAS 17 Leases: assets held for operating leases should be presented in the balance sheet of the lessor according to the nature of the asset.
So, in answer to your specific question, assets held for lease under operating leases should be shown as PPE, or Land and Buildings, or Motor Vehicles, or whatever the general title for that type of asset may be. It is not to be shown as Investment Property”
hi,
thank you for your answer. I am still massively stuck on when to treat rentals as IAS 16 or IAS40.
“If your business is renting properties then it’s IAS 16
If your business is manufacturing catamarans but the company happens to own an area of land that it rents out to a local farmer, then it’s IAS 40”
if your business is renting properties then are the assets not “held to earn rentals” which means that they should be held under IAS 40?
thank you
Hi,
If we are renting properties under an operating lease then the property is accounted for under IAS 40.
If as the lessor we are renting it out under a finance lease then we don’t need to worry about accounting for the PPE as it won’t be recognised on our SFP.
Properties held for our own usage (head office, warehouse, factory) within the business are accounted for under IAS 16.
Follow the link for the rules on IAS 40
https://www.iasplus.com/en-gb/standards/ias/ias40
Hope that this clears up any confusion.
Thanks
Is the last reply correct?
Can we assume that if Land and buildings are rented to others then it can be classified as IAS 40. On the other hand if Equipments other than land and buildings are rented than it will be classified as IAS 16?
Is that so?Hi,
The key is in the title of the standard – Investment Property. So, property is referring to land and buildings, and so if rented out to earn income then it would be IAS 40. If used as part of day to day operations and not rented out then it will be IAS 16.
Thanks
IAS 40 only refers to the land and building (not including the movable assets) and those that are not used for production, supplies or service. And its rental property refers to leasing out a property held under operating lease
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