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Dear Sir,
As per IAS 40, investment property can be measured annually and fair value of those assets can be recognized in financial statements. I’m okay with that practice but as per IAS 16, if we revalue any PPE, any gain on the revaluation should be recognized as an other comprehensive income in OCI and the standard doesn’t allow to recognize that gain in P/L since that gain is not realized yet. And this practice complies with ‘Prudence Concept’ too which states that No income should be recognized in P/L until they are realized.
But if we earn any gain on investment property (Under fair value model), we can recognize that gain in P/L. Let’s say we have a land and we have no intention to sale it very soon (meaning that if we recognize any gain on that asset that would not be realized soon either). In that context, By recognizing any gain in P/L aren’t we going against ‘Prudence concept’ ? So why Can’t we recognize that gain in OCI rather than in P/L?
The very simple answer to this good question is “Because that’s what the standard says we must do”!
Why, when calculating fair value of net assets at date of acquisition (or when calculating the value of consideration paid / to be paid for a controlling interest in a new subsidiary) do we take into account contingencies …. even though the chance of those contingencies occurring is decidedly remote!
Because that’s what the standard says we must do
Thank you for your reply sir.
In fact, can’t be there any ‘Logical’ reason for everything that’s there in a standard?I suppose the logic for gains and losses going to statement of profit or loss is that investment property is property that is held for its income stream or its capital appreciation potential
It’s not held for the long term like “ordinary” ppe is held but could be sold at any time in order to achieve the objective of acquiring it in the first place – making a profit
As such I suppose it’s more in the nature of a transient asset that it is to an item of tangible non-current assets
Maybe that explains it?
What do you think?
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