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A finance lease is one where the lessor transfers the whole or substantially the whole of the risks and rewards of ownership to the lessee for a money consideration
An operating lease is any lease that isn’t a finance lease
Why is this thread titled ‘Investment property’?
As the initial recognition is different in operating lease and finance lease, Secondly,it has been written under heading of IAS 40 investment property, that is why was asking
Q2 What is operating lease if it is not same as finance lease.
An operating lease is one where the lessor does not transfer the whole or substantially the whole of the risks and rewards of ownership to the lessee for a money consideration!
The cost model in IAS 16. Investment property should be measured at depreciated cost, less any accumulated impairement losses. An entity that chooses the cost model should disclose the fair value of it’s investment property.
Q3) my question is why we will disclose the fair value of the investment property though we had already used cost model for that investment property?
Because IAS 40 paragraph 79 says that that is something that must be disclosed when an entity adopts the cost model
‘Additional Disclosures for the Cost Model [IAS 40.79]
the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably, additional disclosures are required, including, if possible, the range of estimates within which fair value is highly likely to lie’
In those rare cases where the entity cannot determine the fair value of an investment property reliably, the cost model in IAS 16 must be applied until the invesment property is disposed of. The residual value must be assumed to be zero.
Q4) my question is that if we will use cost model then, depreciation and impairement losses will be charged which would decrease the residual value so why it is mentioned above that it’s residual value will be zero?
I am sorry sir that i am asking you too many questions related to IAS 40 but i am little bit confused that’s why.
Q4) my question is that if we will use cost model then, depreciation and impairement losses will be charged which would decrease the residual value so why it is mentioned above that it’s residual value will be zero?
An impairment loss does not mean that residual value will be zero
Do you understand what residual value is?
Yes! Residual value is a scrap value which will be paid if we will sold that asset after using it for sometime.
That asset will be depreciated over that time of use.Not only depreciated. It will also be possibly the subject of an impairment write down
But still it could have a residual value which will (maybe, or may not be) possibly affected by the impairment
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