How Well Do You Know IAS 40 Investment Property?

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How Well Do You Know IAS 40 Investment Property? - Quiz

Property investment can be tricky, and sometimes people experience huge financial losses. We're curious just how well you know about IAS 40 investment property. Do you know enough about the concept to ace this quiz with ease? If yes, then we challenge you to give it a try! No cheating! All the questions in the quiz are compulsory, so read them carefully before answering. We hope that you have fun learning! All the very best!


Questions and Answers
  • 1. 

    Under IAS 40, Investment Property, which additional disclosure must be made when an entity chooses the cost model as its accounting policy for investment property?

    • A.

      The present value of the property

    • B.

      The value in use of the property

    • C.

      The net realisable value of the property

    • D.

      The fair value of the property

    Correct Answer
    D. The fair value of the property
    Explanation
    IAS 40 para 79(e)

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  • 2. 

    An entity has a factory which due to a decline in activity is no longer required and is now being held for sale. Is this an investment property?

    • A.

      Yes

    • B.

      No

    Correct Answer
    B. No
    Explanation
    This is a property held for sale in the ordinary course of business and is not an investment property.

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  • 3. 

    Farming land is purchased for its investment potential. Planning permission has not been obtained for building constructions of any kind. Is this an investment property?

    • A.

      Yes

    • B.

      No

    Correct Answer
    A. Yes
    Explanation
    This is land held for long term capital appreciation and therefore is an investment property. The lack of planning permission is not relevant as values can appreciate in the absence of permission to build.

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  • 4. 

    Which TWO of the following properties fall under the definition of investment property and therefore within the scope of IAS 40?

    • A.

      Property occupied by an employee paying market rent

    • B.

      A building owned by an entity and leased out under an operating lease

    • C.

      Property being constructed on behalf of 3rd parties

    • D.

      Land held for long term appreciation

    Correct Answer(s)
    B. A building owned by an entity and leased out under an operating lease
    D. Land held for long term appreciation
    Explanation
    IAS 40 paras 8 and 9

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  • 5. 

    Which TWO of the following disclosures must be made when fair value model is adopted?

    • A.

      Net gains or losses from fair value adjustments

    • B.

      Useful lives or depreciation rates used

    • C.

      The amount of impairment losses recognized

    • D.

      Additions resulting from acquisitions through business combinations

    Correct Answer(s)
    A. Net gains or losses from fair value adjustments
    D. Additions resulting from acquisitions through business combinations
    Explanation
    IAS 40 para 76

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  • 6. 

    Which of the following assets can be classified as investment properties?

    • A.

      Building leased

    • B.

      Unoccupied building

    • C.

      Land

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    All of the given assets can be classified as investment properties. A building that is leased to generate rental income qualifies as an investment property. An unoccupied building that is held for capital appreciation or future use as an investment also falls under this category. Similarly, land held for long-term appreciation or for generating rental income is considered an investment property. Therefore, all three options mentioned - building leased, unoccupied building, and land - can be classified as investment properties.

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  • 7. 

    What are the standards for investment properties?

    • A.

      IAS 40 and IFRS 16

    • B.

      SMEs 17 and IFRS 40

    • C.

      IAS 40 and SMEs 17

    • D.

      None of the above

    Correct Answer
    A. IAS 40 and IFRS 16
    Explanation
    The correct answer is IAS 40 and IFRS 16. These are the standards that provide guidance on how to account for investment properties. IAS 40 specifically deals with the measurement, recognition, and presentation of investment properties, while IFRS 16 provides guidance on lease accounting, which is relevant for investment properties that are leased. Therefore, these two standards are the appropriate standards to refer to when accounting for investment properties.

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  • 8. 

    What happens when an undertaking decides to dispose of an investment property without development?

    • A.

      It is reclassified as owner-occupied

    • B.

      It is transfer to inventory

    • C.

      It continues to treat the property as an investment property

    • D.

      None of the above

    Correct Answer
    C. It continues to treat the property as an investment property
    Explanation
    When an undertaking decides to dispose of an investment property without development, it continues to treat the property as an investment property. This means that the undertaking will still recognize the property as an investment and account for it accordingly, rather than reclassifying it as owner-occupied or transferring it to inventory.

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  • 9. 

    Which of the following does not define investment property?

    • A.

      A property that's held for capital appreciation

    • B.

      Property held to earn rentals

    • C.

      Property used in the production or supply of goods or services

    • D.

      None of the above

    Correct Answer
    C. Property used in the production or supply of goods or services
    Explanation
    Investment property is defined as a property that is held for capital appreciation or to earn rentals. It is not defined as a property used in the production or supply of goods or services. This means that if a property is used for business purposes, such as a factory or office space, it would not be considered investment property. Instead, it would fall under a different category, such as property, plant, and equipment.

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  • 10. 

    How should an investment property be measured? 

    • A.

      At it's fair value

    • B.

      At it's deemed cost

    • C.

      At it's cost

    • D.

      None of the above

    Correct Answer
    C. At it's cost
    Explanation
    An investment property should be measured at its cost because this is the initial amount paid to acquire the property. Cost includes the purchase price, transaction costs, and any other directly attributable costs. Fair value and deemed cost are not appropriate measurements for investment properties as they are typically used for other types of assets.

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