How to Account for Real Estate according to International Financial Reporting Standards (IFRS)

Recording real estate accounting is not as simple as many think. The recording method primarily depends on the purpose of using the property and the company's future intentions, which are usually determined according to the plan approved by the Board of Directors.

Key Accounting Treatments for Real Estate per IFRS:

🔹 1. Properties used as an administrative or operational headquarters – (IAS 16)

Property, Plant and Equipment (PPE)

• The property is recorded as a fixed asset on the balance sheet.
• It is measured using either the cost model or the revaluation model.
• It is subject to annual depreciation over its estimated useful life.

🔹 2. Investment Properties – (IAS 40)

Properties held to earn rentals or for capital appreciation, with two measurement options available:

• Fair Value Model: Periodic revaluation without calculating depreciation, recording changes in profit and loss.
• Cost Model: Calculating depreciation while disclosing the fair value in the notes.

🔹 3. Properties developed for sale – (IAS 2)

Inventory

• Treated as inventory and measured at the lower of cost or net realizable value.
• Cost includes all direct and indirect development and construction costs.

🔹 4. Properties held for sale – (IFRS 5)

Non-current Assets Held for Sale

• The property is reclassified when specific criteria for sale are met.
• Measured at the lower of carrying amount or fair value less costs to sell.
• Depreciation stops from the date of reclassification.

Additional Important Points:

🔹 Transfer Between Classifications:

• When changing the purpose of use, the property must be reclassified according to the appropriate standard.
• Transfers from or to investment properties require special accounting treatments.
• Reasons and effects of reclassification must be disclosed in the financial statements.

🔹 Impairment Test:

• All properties (except those measured at fair value) are subject to impairment testing per IAS 36.
• The test must be performed when there are indicators of impairment.

🔹 Disclosure Requirements:

• Accounting policies followed must be disclosed.
• Details of valuation methods and assumptions used.
• Reconciliation between opening and closing balances.
• Information on any restrictions on property disposal.

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