STANDARD 05

INVESTMENT PROPERTY

(Issued and promulged in pursuance of the Minister of Finance Decision No. 234/2003/QD-BTC dated 30 December 2003)

general

01.  The objective of this standard is to prescribe the accounting policies and procedures in relation to investment property including recognition criteria, initial measurement, subsequent expenditure, transfer, disposal and other guidelines for bookkeeping and financial reporting purposes.

02.  This Standard should be applied in accounting for investment property, unless otherwise provided for under other VASs concerning an accounting method therefor. 

03.  This standard also prescribes determination and recognition of investment property disclosed in the financial statements of a lessee under a finance lease and calculation of investment property for lease presented in the financial statements of a lessor under operating lease. 

This Standard does not deal with matters covered in VAS 06, Leases, including:

(a)    classification of leases as finance leases or operating leases;

(b)   recognition of lease income earned on investment property (see also VAS 14, Revenue and Other Income);

(c)    measurement in a lessee’s financial statements of property held under an operating lease;

(d)   measurement in a lessor’s financial statements of property leased out under a finance lease;

(e)    accounting for sale and leaseback transactions; and

(f)    disclosure about finance leases and operating leases.

04.  This Standard does not apply to:

(a)    biological assets attached to land related to agricultural activity; and

(b)   mineral rights, the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.

05.  The following terms are used in this Standard with the meanings specified:

Investment property is property being land-use rights or a building - or part of a building - or both, infrastructure held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for:

(a)   use in the production or supply of goods or services or for administrative purposes; or

(b)   sale in the ordinary course of business.

Owner-occupied property is property held by the owner or by the lessee under a finance lease for use in the production or supply of goods or services or for administrative purposes.

Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction.

Net-book value represent the cost of an investment property less (-) accumulated depreciation

06.  The following are examples of investment property:

(a)    land-use rights (as a consequence of an enterprise’s purchase) held for long-term capital appreciation;

(b)   land use-rights (as a consequence of an enterprise’s purchase) held for a currently undetermined future use;

(c)    a building owned by the reporting enterprise (or held by the reporting enterprise under a finance lease) and leased out under one or more operating leases;

(d)   a building that is vacant but is held to be leased out under one or more operating leases; and

(e)    infrastructure that is held to be leased out under one or more operating leases.

07.  The following are examples of items that are not investment property:

(a)    property held for sale in the ordinary course of business or in the process of construction or development for such sale (see VAS 02, Inventories);

(b)   property being constructed or developed on behalf of third parties (see VAS 15, Construction Contracts);

(c)    owner-occupied property (see VAS 03, Tangible Fixed Assets), including, among other things, property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees (whether or not the employees pay rent at market rates) and owner-occupied property awaiting disposal; and

(d)   property that is being constructed or developed for future use as investment property.

08.  Certain properties include a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an enterprise accounts for the portions separately. If the portions could not be sold separately, the property is investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

09.  In certain cases, an enterprise provides ancillary services to the occupants of a property held by the enterprise. An enterprise treats such a property as investment property if the services are a relatively insignificant component of the arrangement as a whole. An example would be where the owner of an office building provides security and maintenance services to the lessees who occupy the building.

10.  In other cases where the services provided are a more significant component, an enterprise treats such a property as owner-occupied property. For example, if an enterprise owns and manages a hotel, services provided to guests are a significant component of the arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied property, rather than investment property.

11.  It may be difficult to determine whether a property qualifies as investment property. An enterprise develops criteria so that it can exercise that determination consistently in accordance with the definition of investment property and with the related guidance in paragraphs 06, 07, 08, 09 and 10. Paragraph 31(d) requires an enterprise to disclose these criteria when classification is difficult.

12.  In some cases, an enterprise owns property that is leased to, and occupied by, its parent or another subsidiary. The property does not qualify as investment property in consolidated financial statements that include both enterprises. However, from the perspective of the individual enterprise that owns it, the property is investment property if it meets the definition. Therefore, the lessor treats the property as investment property in its individual financial statements.

CONTENTS OF THE STANDARD

Recognition

13.  Investment property should be recognised as an asset when the following conditions are met:

(a)   it is probable that the future economic benefits associated with the investment property will flow to the enterprise; and

(b)   the cost of the investment property can be measured reliably.

14.  In determining whether an item satisfies the first criterion for recognition, an enterprise needs to assess the degree of certainty attaching to the flow of future economic benefits on the basis of the available evidence at the time of initial recognition. The second criterion for recognition is usually readily satisfied because the exchange transaction evidencing the purchase of the asset identifies its cost.

Initial Measurement

15.  An investment property should be measured initially at its cost. Transaction costs should be included in the initial measurement.

16.  The cost of a purchased investment property comprises its purchase price, and any directly attributable expenditure. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs.

17.  The cost of a self-constructed investment property is its cost at the date when the construction or development is complete. Until that date, an enterprise applies VAS 03, Tangible Fixed Assets and VAS 04, Intangible Fixed Assets. At that date, the property becomes investment property and this Standard applies (see paragraphs 23(e) below).

18.  The cost of an investment property is not increased by:

-       start-up costs (unless they are necessary to bring the property to its working condition);

-       initial operating losses incurred before the investment property achieves the planned level of occupancy;

-       abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property.

19.  If payment for an investment property is deferred, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the period of credit, except when the difference is charged to cost of investment property in accordance with VAS 16, Borrowing Costs. .

Subsequent Expenditure

20.  Subsequent expenditure relating to an investment property that has already been recognised should be added to the net-book value of the investment property when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing investment property, will flow to the enterprise.

21.  The appropriate accounting treatment for expenditure incurred subsequently to the acquisition of an investment property depends on the circumstances which were taken into account on the initial measurement and recognition of the related investment. For instance, when the purchase price of an asset reflects the enterprise’s obligation to incur expenditure that is necessary in the future to bring the asset to its working condition. An example of this might be the acquisition of a building requiring renovation. In such circumstances, the subsequent expenditure is added to the net-book value.

Measurement Subsequent to Initial Recognition

22.  After initial recognition, investment property should be measured at cost, less accumulated depreciation to arrive at net book value in the holding period. 

Transfers

23.  Transfers to, or from, investment property should be made when, and only when, there is a change in use, evidenced by:

(a)    commencement of owner-occupation, for a transfer from investment property to owner-occupied property;

(b)    commencement of development with a view to sale, for a transfer from investment property to inventories;

(c)    end of owner-occupation, for a transfer from owner-occupied property to investment property;

(d)    commencement of an operating lease to another party, for a transfer from inventories to investment property; or

(e)    end of construction or development, for a transfer from property in the course of construction or development (covered by VAS 03, Tangible Fixed Assets) to investment property.

24.  Paragraph 23(b) above requires an enterprise to transfer a property from investment property to inventories when, and only when, there is a change in use, evidenced by commencement of development with a view to sale. When an enterprise decides to dispose of an investment property without development, the enterprise continues to treat the property as an investment property until it is derecognised (eliminated from the balance sheet) and does not treat it as inventory. Similarly, if an enterprise begins to redevelop an existing investment property for continued future use as investment property, it remains an investment property and is not reclassified as owner-occupied property during the redevelopment.

25.  Transfers between investment property, owner-occupied property and inventories do not change the net-book value of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.

Disposals

26.  An investment property should be de-recognized (eliminated from the balance sheet) on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.

27.  The disposal of an investment property may occur by sale or by entering into a finance lease. In determining the date of disposal for investment property and for recognising revenue from the sale of goods, an enterprise applies the criteria in VAS 14, Revenue and Other Income, VAS 06, Leases, applies on a disposal by entering into a finance lease or by a sale and leaseback.

28.  Gains or losses arising from the retirement or disposal of investment property should be determined as the difference between the net disposal proceeds and the net-book value of the asset and should be recognised as income or expense in the income statement (unless VAS 06, Leases, requires otherwise on a sale and leaseback).

29.  The consideration receivable on disposal of an investment property is recognised initially at fair value. In particular, if payment for an investment property is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue under VAS 14, Revenue and Other Income.

Disclosure

30.  The disclosures set out in this VAS apply in addition to those in VAS 06, Leases, under which the lessor is to disclose operating leases and the lessee finance lease.

31.  An enterprise should disclose:

(a)   the depreciation methods used;

(b)   the useful lives or the depreciation rates used;

(c)    the gross net-book value and the accumulated depreciation at the beginning and end of the period;

(d)    when classification is difficult, the criteria developed by the enterprise to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business;

(e)    Income and expense items relating to property lease including:

-          rental income from investment property;

-          direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period; and

-          direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period;

(f)     Reasons of and affects on income from investment property trading;

(g)   material contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements;

(h)   The followings should be disclosed (comparative information is not required):

-          additions, disclosing separately those additions resulting from acquisitions and those resulting from capitalised subsequent expenditure;

-       additions resulting from acquisitions through business combinations;

-          disposals; and

-       transfers to and from inventories and owner-occupied property; and

(i)     the fair value of investment property at the end of a period. When an enterprise cannot determine the fair value of the investment property reliably, the enterprise should disclose:

-          a description of the investment property; and

-          an explanation of why fair value cannot be determined reliably.