Investment Property Financial Reporting Standard FRS 40

Investment Property FINANCIAL REPORTING STANDARD FRS 40 | Bestar

Investment Property Financial Reporting Standard FRS 40

SB-FRS 40 is the Singaporean Financial Reporting Standard that outlines how entities should account for investment properties in their financial statements. Here's a breakdown of the key points:

What is an Investment Property?

FRS 40 defines an investment property as land or a building (or part of one) that's held to generate rental income or for capital appreciation (or both). This excludes property used in an entity's core operations (e.g., factories, office buildings the company occupies).

Measurement:

• Initial Measurement: Investment properties are initially recognized at cost, which includes purchase price, transaction costs, and any directly attributable costs to get the property ready for use.
  

• Subsequent Measurement: Entities can choose between two measurement models:

  • Fair Value Model: Reflects the current market value of the property. Any changes in fair value are recognized in profit or loss.

  • Cost Model: Carries the property at its initial cost minus accumulated depreciation and any impairment losses.

Measurement at Recognition

For investment properties under FRS 40, measurement at recognition follows a straightforward approach:

Cost Model

Investment properties are initially recognized at their cost. This cost includes:

• Purchase price: The amount paid to acquire the property.

• Transaction costs: Fees and expenses directly related to acquiring the property, like legal fees, agent commissions, valuation costs, and property transfer taxes.

• Directly attributable costs: Any expenses incurred to get the property ready for its intended use. This could include renovations, modifications, or bringing the property to a rentable state.

Important points to consider:

• Trade discounts and rebates are deducted from the purchase price.

• Import duties and non-refundable taxes are included in the cost.

• Cash price equivalent applies if payment is made beyond normal credit terms. The difference between the cash price and the deferred payment is recognized as interest over time (unless capitalized under other standards).

• Exchange for non-monetary assets: If the property is acquired through an exchange for another asset (not cash), the cost is generally measured at the fair value of the asset given up, unless the exchange lacks commercial substance or fair value of neither asset is reliably measurable.

In essence, the initial measurement captures the total investment made to acquire and prepare the investment property for its intended use.

This cost model approach provides a clear and objective basis for valuing the property at the outset.

Disclosures:

FRS 40 requires entities to disclose significant information about their investment properties, including:

• The measurement basis used (fair value or cost model)

• Depreciation methods used

• Existence and amount of any revaluation surplus

• Rental income generated

Resources:

For a deeper understanding, you can refer to the following resources:

• Accounting Standards for Statutory Boards (ASSSB): SB-FRS 40 [PDF] (https://www.assb.gov.sg/)

• IAS Plus (International Accounting Standards): IAS 40 Investment Property (https://www.iasplus.com/en/standards/ias/ias40)

• Accounting and Corporate Regulatory Authority (ACRA): Financial Reporting Standards (FRSs) (https://www.acra.gov.sg/accountancy/accounting-standards)

Remember, these are the general principles. It's always advisable to consult with a qualified professional for specific accounting advice on your investment property.https://www.bestar-sg.com/

How Bestar can Help

Here are some possibilities on how Bestar might assist with Investment Property Financial Reporting Standard (FRS 40) in Singapore:

Accounting:

• We have qualified professionals experienced in FRS 40 implementation.
  

• Bestar could help with:

  • Initial adoption of FRS 40 for your investment properties.

  • Choosing the appropriate measurement model (cost or fair value).

  • Preparing valuations for fair value measurement.

  • Calculating depreciation and impairment losses.

  • Ensuring your financial statements comply with FRS 40 disclosure requirements.
    

Financial Consulting:

• Bestar could offer general financial consulting services that include expertise in FRS 40.
  

• We might assist with:

  • Reviewing your existing investment property accounting practices for FRS 40 compliance.

  • Developing internal controls for FRS 40 implementation.

  • Training your staff on the requirements of FRS 40.

Contact Bestar to inquire about our services related to FRS 40 and how we

can specifically address your investment property accounting needs.

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