IAS 40 – Investment Property Explained

A Complete Guide by Direct Assist – Chartered Certified Accountants

Published: 6 February 2026

IAS 40 Investment Property sets out the accounting treatment for investment property and related disclosure requirements under International Financial Reporting Standards (IFRS).

Investment property includes land or buildings, or part of a building (including integral components such as lifts, chiller plants, and air-conditioning systems), that are:

• Held to earn rental income, or

• Held for capital appreciation, or

• Held for both rental income and capital appreciation

What Is Not Considered Investment Property?

IAS 40 excludes the following assets:

• Owner-occupied property (accounted for under IAS 16 – Property, Plant and Equipment)

• Property used in the production or supply of goods or services, or for administrative purposes (IAS 16 applies)

• Property held for sale in the ordinary course of business (accounted for under IAS 2 – Inventories)

Recognition Criteria

Investment property is recognised as an asset only when both of the following conditions are met:

• It is probable that future economic benefits associated with the property will flow to the entity; and

• The cost of the property can be measured reliably

Initial Measurement

Investment property is initially measured at cost.
Cost includes the purchase price and any directly attributable expenditure required to bring the asset to its intended use.

Subsequent Measurement Models Under IAS 40

After initial recognition, IAS 40 permits entities to choose one of two measurement models, which must be applied consistently to all investment properties.

1. Cost Model

Under the cost model:

• Investment property is carried at cost

• Less accumulated depreciation

• Less accumulated impairment losses

This model follows the same principles as the IAS 16 cost model.

2. Fair Value Model

Under the fair value model:

• Investment property is measured at fair value in accordance with IFRS 13 – Fair Value Measurement

• All changes in fair value (gains or losses) are recognised directly in profit or loss

• No depreciation is charged on investment property

• No annual impairment testing is required, as the asset is remeasured at fair value at each reporting date

IAS 16 Revaluation Model vs IAS 40 Fair Value Model

Although both models involve remeasurement, there are key differences:

• Revaluation surplus under IAS 16 is recorded in equity, whereas fair value gains or losses under IAS 40 are recognised in profit or loss

• Depreciation is charged on revalued assets under IAS 16, but not under the IAS 40 fair value model

• Impairment testing is required under IAS 16 but not required annually under IAS 40 fair value model

• Downward revaluations under IAS 16 may be recognised in profit or loss, whereas under IAS 40 both upward and downward movements affect profit or loss

• IAS 16 applies to property, plant, and equipment, while IAS 40 applies only to land and buildings, not equipment

Disclosure Requirements Under IAS 40

Entities must disclose the following information in their financial statements:

• The measurement model used (cost or fair value)

• Methods and significant assumptions applied in determining fair value

• Whether fair value was determined by a qualified independent valuer

• Rental income derived from investment property

• Direct operating expenses relating to investment property that generated rental income

• Restrictions on the realisation of investment property or remittance of income

• Contractual obligations to purchase, construct, develop, repair, or enhance investment property

Additional Disclosures – Fair Value Model

Entities applying the fair value model must also disclose:

• A reconciliation of carrying amounts at the beginning and end of the period, including additions, disposals, fair value changes, foreign exchange differences, and transfers

• Any significant adjustments made to external valuations

• Additional disclosures where the cost model is applied to specific properties despite using the fair value model

Additional Disclosures – Cost Model

Entities using the cost model must disclose:

• Depreciation methods used

• Useful lives or depreciation rates

• Gross carrying amounts and accumulated depreciation and impairment

• A reconciliation of carrying amounts showing additions, disposals, depreciation, impairment, foreign exchange differences, and transfers

Final Thoughts

IAS 40 provides clear guidance on how investment property should be recognised, measured, and disclosed. The choice between the cost model and fair value model has a significant impact on reported profits, asset values, and financial statement transparency.

Understanding IAS 40 is essential for businesses with rental properties, property investors, and entities preparing IFRS-compliant financial statements.

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