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IAS 40 : Investment Property : Building which is constructed on leased land given on operating lease


If an entity owns a hotel that it leases out (as lessor) under an operating lease to a hotel management group.The hotel is situated on land leased by government to the entity (as lessee) for a period of 99 years with no transfer of title to the entity at the end of the lease. The hotel building’s useful life is expected to be approximately 40 years. There are no provisions in the lease to return the land with the building intact at the end of the 99 years lease.Whether land and building both qualify to be investment property as per IAS 40?

asked Nov 2 in IAS 40 - Investment Property by Vishal Sharma Level 1 Member (1,360 points)
Thanks!
And yeah the hotel management group is not part of the group.

1 Answer

+1 vote
This question has two answers due to insufficient of information that the entity owns hotel is the part of that group? If yes, then according to IAS 40 property rented out within group such as rented out to parent, subsidiary or fellow subsidiary is not investment property in consolidated financial statements that include both lessor and lessee. But can be recognized investment property into lessor financial statements (separate financial statements)  The reason behind this is that the property is  owner occupied property  with perspective of group.   

Second answer is that, if entity is not part of that hotel management group, in this case entity can recognize land and building as investment property because entity's intention is to earn rentals further, normally land is leased out by government to entities and individual for 99 years and is also renewed after the end of 99 years. and land cannot be separated from building therefore land and building will be recognized as investment property.
answered Nov 4 by Maher Ali Level 2 Member (4,360 points)


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