How to Revalue Investment Property to Fair Value and Record the Gain Under IAS 40
Adjusting the carrying value of a rental building upward to its current market value with the gain recognized in profit or loss.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Investment Property | Asset (+) | 40,000.00 | - |
| Gain on Property Revaluation | Revenue (+) | - | 40,000.00 |
💡 Accountant's Note
Under the IAS 40 Fair Value model, investment properties are not depreciated. Any change in market value goes directly to the Income Statement each year.
Practitioner & Systems Framework
💻 ERP Architecture
Under the IAS 40 fair value model, obtain an independent RICS-qualified (or local equivalent) valuation at each reporting date. Post the fair value gain directly to the income statement — unlike PPE revaluation (which goes to OCI). The property is never depreciated under the fair value model. Maintain a fair value movement schedule showing opening carrying value, fair value gain/loss, and closing carrying value for each investment property. Note: once the fair value model is elected, it must be applied consistently to all investment property.
⚠️ Audit Flags
Auditors require an independent professional valuation — management estimates are insufficient for material investment properties. They assess the valuer's independence, qualifications, and methodology (income capitalization, comparable sales, discounted cash flow). Significant fair value gains near year-end without a supporting market trend are scrutinized. The gain goes to P&L (not OCI) — this is a key distinction from PPE revaluation and a common exam and audit test point.
📄 Required Documentation
Independent valuer's report (RICS or equivalent qualification, valuation methodology, date of valuation, effective date), fair value movement schedule per property, comparison to prior year valuation, investment property register, IAS 40 accounting policy disclosure (fair value model elected), and rental income supporting the income capitalization approach.
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