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Dear sir,
I have a doubt with this lineIn the BPP text there is a line in investment property that says
“A building held by a parent and leased to a subsidiary. Note, however, that while this is regarded as an investment property in the individual parent company financial statements, in the consolidated financial statements this property will be regarded as owner-occupied (because it is occupied by the group) and will therefore be treated in accordance with IAS 16.”
What does this mean?
Thanks!
For individual entity financial statements, the parent will recognise and treat this as n investment property – held for its rental income or capital gain potential and not self-occupied
It’s rented out at arm’s length
But who to?
The subsidiary entity
So whilst it is correct that the parent in its own financial statements should treat this property as investment property, when it comes to consolidation … well that’s a different kettle of fish!
You see, the exercise of consolidation is to present the financial statements of the group as though all the entities within the group were aggregated into one single entity
And when a parent is renting an asset to s subsidiary, on consolidation it means that the parent is renting that asset to itself (because all the entities within the group are viewed together as though they were a single entity
So instead of treating it under IAS 40 Investment Property, on consolidation the group financial statements will show that building as just another piece of ppe
Is that better?
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