Investment property is defined as property that is owned (or, in some cases, leased under a finance lease) for the purpose of earning rental income, capital appreciation, or both.

Under IFRS, companies are allowed to value investment properties using either a cost model or a fair value model.

• The cost model is identical to the cost model used for property, plant, and equipment (PP&E).
• The fair value model differs from the revaluation model used for PP&E. All changes in the fair value of investment property affect income.

Under U.S. GAAP, there is no specific definition of investment property. Investment properties are generally measured using the cost model.

Practice Question 1

Under IFRS, which model is NOT allowed to value investment property?

A. Cost model
B. Fair value model
C. Revaluation model

Correct Answer: C

Practice Question 2

Which asset is qualified to be an "investment property" under IFRS?

A. An office building used by GM for its employees
B. An apartment building owned by a property management company
C. A house owned by a construction company to be sold once the construction work is done

Correct Answer: B

To qualify as an investment property, the property should be owned for the purpose of earning rental income or capital appreciation or both.