Investment Property - Government Accounting

Investment Property - Government Accounting

• Investment property is defined as land, buildings (or parts), held for rental income, capital appreciation, or both.
• Owner-occupied property is used for producing/supplying goods/services, or administrative purposes.

Cost Model

• Investment property (IP) is initially measured at cost.
• Transaction costs are incorporated into the initial measurement.
• Cost includes purchase price plus directly attributable expenses.

Acquisition - Cash Purchase

• Example: Entity A buys land for ¥1,050,000 (includes ¥50,000 in fees/taxes).
• Accounting entry:
  • Debit: Investment Property, Land ¥1,050,000
  • Credit: Cash-Modified Disbursement System (MDS), Regular ¥1,050,000

Non-exchange Transaction

• Example: Entity A receives land donation valued at ¥2,000,000.
• Accounting entry:
  • Debit: Investment Property, Land ¥2,000,000
  • Credit: Income from Grants and Donations in Kind ¥2,000,000

Self-constructed Property

• If IP is self-constructed, all related costs are initially recorded under "Construction in Progress."

• Upon completion, these costs are transferred to "Investment Property."

• Example Advance payment is 15% of the contract price, whereas contractor retention fee is 10% of the progress billing.

Transfer

• Transfers to or from Investment Property occur when there's a change in use. Examples include:
  • Commencement of owner-occupation.
  • Commencement of development for resale.
  • End of owner-occupation.
  • Start of commercial lease.

Derecognition of Investment Property

• IP is derecognized upon disposal or permanent withdrawal from use if no future economic benefits are expected.

Gains/Losses

• Example: A building (held as IP) sold for ¥5,000,000 with initial cost ¥4,000,000, accumulated depreciation ¥500,000, and impairment allowance ¥100,000
• Accounting entries:
  • Debit: Cash-Collecting Officers ¥5,000,000
  • Credit: Accumulated Depreciation-Investment Property, Buildings ¥500,000
  • Credit: Accumulated Impairment Losses-Investment Property, Buildings ¥100,000
  • Credit: Investment Property, Buildings ¥4,000,000
  • Credit: Gain on Sale of Investment Property ¥1,600,000

Compensation of 3rd Parties

• Example: A building (held as IP) is destroyed by fire. Initial cost ¥4,000,00, accumulated depreciation ¥500,000, impairment allowance ¥100,000
• Accounting entries:
  • Debit: Loss of Assets ¥3,400,000
  • Credit: Accumulated Depreciation-Investment Property, Buildings ¥500,000
  • Credit: Accumulated Impairment Losses-Investment Property, Buildings ¥100,000
  • Credit: Investment Property, Buildings ¥4,000,000

Due from Government-Owned or Controlled Corporations

• (Note: Specific journal entries)

Impairment

• An asset is impaired when its carrying amount exceeds its recoverable amount (due to a fall in market value).
  • Impairment loss = Carrying Amount - Recoverable Amount
  • Recoverable Amount = Higher of Fair Value Less Cost to Sell and Value in Use
  • Value in Use = Present Value of the asset's future cash flows

Adjusted Depreciation

• Depreciation expense = Revised Carrying Amount - Residual Value / Remaining Estimated Useful Life (months)

Reversal

• An entity assesses if an impairment loss from prior periods for an asset no longer exists or has decreased. If so, the recoverable amount is estimated.

Example Computations and Reversals (Specific examples involving calculations)