Operating Lease and Investment Property

This topic has 3 replies, 2 voices, and was last updated 11 months ago by Kim Smith.

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July 16, 2021 at 4:49 pm #627962
salman7
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Dear tutor,

Why only operating lease can be an investment property, if it meets the definition of Investment Property? Can finance lease be an investment property ?

Thanks,
July 16, 2021 at 5:37 pm #627965
Kim Smith
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I am wondering what is the source of your query? Since IFRS 16 replaced IAS 17, the operating/finance lease distinction applies only to the lessor.

The essence of lease accounting for lessors is now:
SoFP
– Classification as finance or operating lease
– Finance lease: derecognition of the underlying asset, recognition of a lease receivable at amount equal to the net investment in the lease
– Operating lease: continue to recognise the underlying asset
SoPL
– Finance lease: interest measured using the effective interest rate method
– Operating lease: lease payments on straight-line basis

So an investment property will only be recognised as such in the accounts of a lessor if it is an operating lease.

Does that help?
July 16, 2021 at 6:15 pm #627969
salman7
- Topics: 76
- Replies: 36
Thank you for your comments.

As per my understanding, only operating lease of the lessors can be an investment property as per IAS 40.

This item of investment property has not been examined yet?
July 16, 2021 at 6:23 pm #627971
Kim Smith
Keymaster
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Yes – I though that is what my reply was confirming to you (!)

In AAA? I can’t say because not all questions are published (18 Qs for two exam sessions and ACCA publishes only 3 in a sample exam).
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