Under IAS 40 Investment Property, which of the following transfers could result in a change from a cost model to a fair value model? A transfer from investment property to owner-occupied property A transfer from inventories to property available for rental A transfer from investment property to inventories, when the property is intended for sale A.1 only B.2 only C.1 and 2 only D.1, 2 and 3
Question
Under IAS 40 Investment Property, which of the following transfers could result in a change from a cost model to a fair value model? A transfer from investment property to owner-occupied property A transfer from inventories to property available for rental A transfer from investment property to inventories, when the property is intended for sale A.1 only B.2 only C.1 and 2 only D.1, 2 and 3
Solution
The correct answer is B.2 only.
Here's why:
Under IAS 40, a change from cost model to fair value model could occur when there is a change in the use of the property. This is evidenced by the commencement of an operating lease to another party.
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A transfer from investment property to owner-occupied property would not result in a change from cost model to fair value model. This is because owner-occupied properties are accounted for under IAS 16 Property, Plant and Equipment, not IAS 40.
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A transfer from inventories to property available for rental would result in a change from cost model to fair value model. This is because the property is now being used as an investment property, which falls under IAS 40.
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A transfer from investment property to inventories, when the property is intended for sale, would not result in a change from cost model to fair value model. This is because the property is no longer being used as an investment property, but rather as inventory, which falls under IAS 2 Inventories.
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