Investment Property is land or a building held to earn rentals or for capital appreciation, rather than for use in delivering services. Example: A county government owning a commercial building and leasing it out to businesses.

• Initial Measurement: Measured at cost, including transaction costs.
• Subsequent Measurement
  • Entities must choose one of two models for all investment properties:
    • Fair Value Model: The property is remeasured to fair value at each reporting date. Any gain or loss is recognized directly in the surplus or deficit for the period. No depreciation is charged under this model.
    • Cost Model: The property is measured at cost less accumulated depreciation and impairment, following the same rules as IPSAS 17 for PPE. However, the fair value must still be disclosed in the notes if it can be determined reliably.

Example: Investment Property under the Fair Value Model

A public university purchases a building on July 1, 2023, for Ksh 50,000,000. The university intends to lease out the entire building to a private college to earn rental income. The university adopts the Fair Value Model for its investment properties.

The fair value of the building, determined by an independent valuer, is as follows:

• As at June 30, 2024: Ksh 55,000,000
• As at June 30, 2025: Ksh 52,000,000

Step 1: Initial Recognition (July 1, 2023)

The building is classified as Investment Property and recognized at its initial cost.

Journal Entry:

• Dr Investment Property Ksh 50,000,000
• Cr Cash/Bank Ksh 50,000,000 (To record the acquisition of the investment property)

Step 2: Subsequent Measurement (End of Year 1 – June 30, 2024)

Under the Fair Value Model, the property is remeasured to its fair value at the end of the reporting period. The change in value is recognized in the surplus or deficit for the year. No depreciation is charged.

• Fair Value at June 30, 2024: Ksh 55,000,000
• Carrying Amount at July 1, 2023: Ksh 50,000,000
• Fair Value Gain: Ksh 55,000,000 – Ksh 50,000,000 = Ksh 5,000,000

Journal Entry:

• Dr Investment Property Ksh 5,000,000
• Cr Fair Value Gain on Investment Property (Surplus/Deficit) Ksh 5,000,000 (To recognize the increase in the fair value of the investment property)

After this entry, the Investment Property is reported on the Statement of Financial Position at Ksh 55,000,000.

Step 3: Subsequent Measurement (End of Year 2 – June 30, 2025)

The property is again remeasured to its fair value.

• Fair Value at June 30, 2025: Ksh 52,000,000
• Carrying Amount at June 30, 2024: Ksh 55,000,000
• Fair Value Loss: Ksh 52,000,000 – Ksh 55,000,000 = (Ksh 3,000,000)

Journal Entry:

• Dr Fair Value Loss on Investment Property (Surplus/Deficit) Ksh 3,000,000
• Cr Investment Property Ksh 3,000,000 (To recognize the decrease in the fair value of the investment property)

After this entry, the Investment Property is reported on the Statement of Financial Position at Ksh 52,000,000.

Summary of Presentation

• Statement of Financial Position: The Investment Property will be shown at its fair value at the end of each year (Ksh 55M in 2024, Ksh 52M in 2025).
• Statement of Financial Performance:
  • For the year ended June 30, 2024, a Fair Value Gain of Ksh 5,000,000 will be reported as part of the surplus.
  • For the year ended June 30, 2025, a Fair Value Loss of Ksh 3,000,000 will be reported, reducing the surplus.
• Any rental income earned from leasing the property would also be recognized as revenue in the Statement of Financial Performance each year.