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Hello Mike!
I am referring to the following post:
https://opentuition.com/topic/ias-40-15/1.I am still confused.
How can the gain be equivalent to profit when it is not yet been realized?
-I do have understood you explanation, but although investment property is a profit generator on its own, each year the entity will be getting a gain ‘that exists on paper’This is the IASPLUS site overview of IAS 40:
“Overview
IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both). Investment properties are initially measured at cost and, with some exceptions. may be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognised in profit or loss.”
If the IAS says that gains and losses under the fair value model should be recognised through profit or loss, then gains and losses should be recognised through profit or loss!
“Ours not to reason why … ours just to do, or die”
The movement in the fair value is exactly in line with the reason that we have acquired this property. Imagine if we didn’t recognise gains / losses in profit or loss as they arose and, 20 years after acquiring this property for its income-earning potential of capital growth potential, we sell it and realise the enormous profit that we had foreseen 20 years earlier
Imagine the effect on that single profit or loss account from 20 years hence and try to compare the results from that year with the previous 19 years’ results. There would be no meaningful comparison available
OK?
OK?
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