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1.Why investment property on fair value not depreciated?
2. Why the gain on bringing the investment property to Fair value, taken to profit and loss instead of taking to other comprehensive income?The simple answer to both questions is “Because that’s what IAS 40 tells us to do”
Now, if you’re asking what the thinking was in the minds of the IASB when they published / a issued IAS 40 – I can only guess
No depreciation – investment property is property that is acquired or held for its revenue earning potential or for capital appreciation” Now, if we’re holding this asset for the potential capital appreciation, it seems contradictory then to be charging depreciation!
Why profit or loss and not comprehensive income? I suppose it’s because we are effectively disposing of one asset (previously classified as PPE) when we reclassify as investment property.
So we’re treating the revaluation exercise as a disposal and the gain has therefore gone to profit or loss
Probably
Hope that helps
yes got it…thnx and what is the reasoning behind ias 16 rev gains going to other comprehemsive income?
Because it’s a revaluation, not a sale. Were you to consider gains on disposals of PPE, they would go to profit or loss – they have been achieved.
But a mere revaluation is n line with the fond expectations of an involved board of directors. There is nothing certain about an unrealised profit on the revaluation of PPE
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