Methods for Evaluating Investment Property
Methods for evaluating investment property
As we have already mentioned in the presentation of existing methods of accounting, the company will have two methods of valuation for its investment property:
- Historical cost
- Fair value.
The cost model is the benchmark treatment in IAS 16. Investment properties are valued in effect, subsequent to their initial value, at cost less accumulated depreciation and accumulated impairment losses. However, although the cost model can be chosen by companies as a model for evaluating their investment property, businesses should still mention just attached the corresponding value.
If the cost model can be determined without much difficulty by the companies, it is different for the fair value. This corresponds to the amount for which an asset could be exchanged between willing parties, willing parties in an arm’s length transaction. It is therefore the most probable price reasonably obtainable on the market at the closing date of the exercise. IAS 40 encourages companies to use independent experts to assess the fair value of investment properties. This standard considers that the best evidence of fair value is provided by the current prices in an active market for similar property in the same location, the same state and subject to leases or similar contracts.
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