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PSAK 13: Investment Property Overview

01 Nov 16

 

It’s often that fixed assets are the biggest component in the statement of financial position of the enterprise. Land, building, plant, vehicle, and equipment that has a useful life more than 1 year are included in fixed asset categorized. But, is your company fixed asset have been classified correctly? Because, it’s often that a company purchases land and building (property) but not to provide goods and services, but solely for investment. How investment on land and building should be recorded? Land and building that acquired not to provide goods and services in daily activities should be recorded as investment property.

 

What is Investment Property?

Investment property is property (land or building or part of building or both) owned by entities with the intention of earning rentals or for capital appreciation and not used for production or provide goods and services for administrative purposes and not for sale in daily activities.

Here is example of land and building are classified as investment property:

a. Land held for long terms capital appreciation.

b. Land held for an undetermined use in the future.

c. Property in development process and in the future will be used as an investment property.

d. Building own by reporting entity under a finance lease and leased out to other parties under one or more operating leases.

e. Vacant building held by an entity to be leased out under one or more operating leases.

 

While the property is not categorized as investment property such as:

a. Property held for sale in daily activities.

b. Property being constructed or developed on behalf third party.

c. Property rented to other entities through financial lease

 

Investment Property

Fixed Asset

a. Not use for production or provide goods and services in daily operation activities.

a. Use for production or provide goods and services in daily operation activities.

b. Not for administrative purpose

b. For administrative purpose

 

When Investment Property Can Be Recognized As An Asset?

Investment property will be recognize as an asset when the cost value can be reliably measured and future economic benefit of the property will flow to the reporting entity.

 

How Investment Property Is Measured?

A. Initial Measurement

Initial measurement of property investment will be at cost. The cost that included in acquisition cost is purchase price and all expenditures directly attributable incurred in transaction, such as: legal fees, sales tax, and other transaction cost. However, if an entity acquired property from exchange of monetary or non-monetary assets or combination of monetary or non-monetary assets, the acquisition cost shall be measured using the fair value, except:

i.  The exchange transaction has no commercial substance. 

ii. The fair value of assets are exchanged can’t be measured reliably

B. Measurement After Recognition

After recognition, reporting entity can choose to use fair value or cost models. For entity that use fair value are encouraged to use the fair value based on appraisal by independent appraiser who has a professional qualification and has been recognized and has experience in the location where the property is assessed. And gains or losses resulting from changes in fair value of investment property shall be recognized in income statement in the period when its occurred.

For entity that use cost models, reporting entity measure its investment property by applying standards according to PSAK 16 regarding fixed assets, unless the investment property is categorized as held for sale.

 

Fair Value Method
(PSAK 13)

Revaluation Model (PSAK16)

  • Use Fair Value
  •  Use Fair Value
  • Changes in fair value are recognized in income statement in the period when its incurred.
  • Changes in fair value are recognized in comprehensive income statement or equity.
  •  No Depreciation
  • Depreciation
  • Reflecting market conditions at the balance sheet date.
  • Not specific, only requires regular assessment,

 

What Is The Fair Value Of Investment Property?

Fair value of investment property is exchange price of property between the parties who have sufficient knowledge and have a willing in arm’s length transaction, so that the fair value of investment property reflects market condition at the end of the reporting period.

Fair value doesn’t include the assumption of increase or decrease of the price because of special circumstances and in determining fair value should not be deducted transaction cost that arise from sale or other disposal.

Fair value of investment property must reflecting the cash inflows such as income from rents, which reflecting assumptions from parties who are willing to transact and have sufficient knowledge on rental income in the future by considering the current condition. By the same consideration, fair value must concern on cash outflow related to that property.

Fair value transaction also refers to the parties who enter in transaction, that the parties who enter in transaction have not certain/ special relationship that makes the transaction price does not reflect characteristic of market condition.