operating lease

‘a property interest that is held by the lessee under an operating lease may be classified and accounted for as an investment property , if and only if the the property meets the definition of an investment property!’

This is an example of awkward sentence construction. I’ll see if I can correct it to maybe make it clearer

“a property interest that is held by A lessee under an operating lease may be classified and accounted for as an investment property BY THE LESSOR, if and only if the property meets the definition of an investment property”

Why emphasis on fair value? I’m guessing (because I don’t know definitively the answer!) it’s because where a company owns an asset that is classed as an investment property, held for capital appreciation or income stream generation, wouldn’t you as a shareholder want to know how well this investment property is performing?

Your directors have spent trillions of dollars some years ago acquiring a property for its capital appreciation potential and the directors have opted to apply the cost model

Surely you would want to know by how much the fair value exceeds depreciated cost

OK?

This is the relevant section of the B1 section of the syllabus relating to Property, Plant and Equipment:

“f) Discuss why the treatment of investment properties should differ from other properties.[2]
g) Apply the requirements of relevant accounting standards to an investment property.[2]”

and this is the B6 section of the syllabus relating to Leases:

“6. Leasing

a) Explain why recording the legal form of a finance lease can be misleading to users (referring to the commercial substance of such leases).[2]

b) Describe and apply the method of determining a lease type (i.e. an operating or finance lease).[2]

c) Discuss the effect on the financial statements of a finance lease being incorrectly treated as an operating lease.[2]

d) Account for assets financed by finance leases in the records of the lessee.[2]

e) Account for operating leases in the records of the lessee.[2]

f) Account for sale and leaseback agreements.”

With the possible exception of point e) from B6, there is no indication from within your syllabus that property held under an operating lease classified as investment property is ever likely to come up as an exam question

However … where property IS held under an operating lease, it seems that the lessee is potentially able to classify that property on the condition that the terms of the lease agreement are such that the asset satisfies the criteria for being treated as a finance leased asset

G*d bless BPP for indulging in the fantasy that that point could be important for F7 students!