Dealing with “GRANTS”

Alternatively, the grant can be deducted from the carrying amount of the asset. This will result in reduced depreciation charges over the asset’s useful life. Investment properties IAS 40 is applicable to property, which is acquired as an investment rather than for use, is not consumed in the entity’s operations and does not have a useful life. Examples of investment properties provided in IAS 40 include: land held for long-term capital appreciation and buildings leased out under one or more operating leases. It should be noted that property being constructed or developed for third parties is covered by IAS 11 Construction Contracts and property leased under a finance lease is covered by IAS 17 Leases. If the property is owner-occupied then IAS 16 applies. Once it has been ascertained that the property is an investment property, IAS 40, similar to IAS 16, allows a choice of two models; the ‘fair value model ‘ or the ‘cost model’. If the fair value model is used then any gain or loss arising from a change in the fair value of the investment property must be recognised in the calculation of profit and loss in the SCI for the period in which it arises. This is in contrast to the IAS 16 treatment of revaluation gains and losses discussed earlier, which requires revaluation gains to be excluded from profit. In addition, under the fair value model, no deprecation is charged on investment properties.