Assume that an entity had a vacant building which is leased out to an unrelated third party under an operating lease. However, the entity occupies an insignificant proportion of the building. Can the entity still classify this property as an investment property?
The entity first needs to determine if the two portions can be sold separately or not. If the two portions cannot be sold separately, then the entire property is treated as investment property only if an insignificant proportion is owner-occupied. The term “insignificant” is not defined in the IFRS standards and this term is left to judgment. Suggest that the entities work around 2% as the definition of insignificant and document this definition of insignificant in their internal policy documents.
(References: IAS 40, Wiley IFRS: Practical Implementation Guide and Workbook)
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