IFRS in Real Estate

• Investment property

Not separately defined and no specific guidance exists.

Defined as land and/or buildings held to generate rental revenue, capital appreciation, and/or redevelopment; not owner-occupied; and not held for sale in the ordinary course of business.

IFRS permits investment property to be recorded at fair value, with changes in fair value recognized as unrealized gain or loss.

• Depreciation

Based on the weighted average of the lives of the individual components of an asset. Component depreciation is permitted,

Requires componentization of significant parts of real estate and equipment that have different estimated useful lives. Each significant part of an asset with a different useful life is accounted for and depreciated separately.

• Assessing for impairment of long-lived assets held and used

Requires a two-step approach to determine whether an impairment loss should be recognized by comparing the carrying value with the undiscounted value of future cash flows of the asset. If the carrying value is higher, then the asset is written down to fair value.

Uses a one-step test comparing carrying value to the recoverable amount.  If the carrying value exceeds the recoverable amount, the asset is written down. This often enables the impairment loss to be recognized sooner and more frequently than under GAAP.

• Reversing previous impairment losses

Not permitted

Permitted under certain circumstances.

• Effective dates for new lease standards

Effective for annual periods beginning after December 15, 2018, for public business and certain other entities, and after December 15, 2019, for other entities.

Effective for annual periods beginning on or after January 1, 2019. 

• Lessor accounting

Lessors may elect to combine certain non-lease components into the related lease component.

Lessors may not combine lease and non-lease components.

• Lessee accounting

Dual on-balance sheet lease accounting model for lessees, which classifies a lease as either a finance lease or an operating lease.

Under a finance lease, interest and amortization are recorded, while only rent expense is recorded under an operating lease.

Single on-balance sheet lease accounting model for lessees, which is similar to a finance lease accounting for GAAP.

• Sale and leaseback accounting

Seller-lessee immediately recognizes the full gain or loss from a sale and leaseback transaction that qualifies as a sale.

Recognition of gains from sale and leaseback transactions is limited.

An investment of 20% or more of the voting common stock of an investee leads to a presumption that an investor has the ability to exercise significant influence over an investee, unless this presumption can be overcome based on facts and circumstances.

An investment of 20% or more of the equity of an investee (including potential rights) leads to a presumption that an investor has the ability to exercise significant influence over an investee, unless this presumption can be overcome based on facts and circumstances.

When determining significant influence, potential voting rights are generally not considered.

When determining significant influence, potential voting rights are considered if currently exercisable.

An investor in a limited partnership, LLC, trust or similar entity normally accounts for its investment using the equity method.

When an investor has an investment in a limited partnership, LLC, trust or similar entity, the determination of significant influence is made using the same general principle of significant influence that is used for all other investments.

Conforming accounting policies between investor and investee is generally not permitted.

Uniform accounting policies between investor and investee are required.

Joint ventures are generally defined as entities whose operations and activities are jointly controlled by their equity investors. The purpose of the entity should be consistent with the definition of a joint venture.

Joint ventures are separate vehicles in which the parties that have joint control of the separate vehicle have rights to the net assets. These rights could be through equity investors certain parties with decision-making rights through a contract.

Joint control is not defined, but it is commonly interpreted to exist when all of the equity investors unanimously consent to each of the significant decisions of the entity.

Joint control is defined as existing when two or more parties must unanimously consent to each of the significant decisions of the entity.

An entity can be a joint venture, regardless of the rights and obligations the parties sharing joint control have with respect to the entity’s underlying assets and liabilities.

In a joint venture, the parties cannot have direct rights and obligations with respect to the underlying assets and liabilities of the entity.

The investors generally account for their interests in joint ventures using the equity method of accounting. They also can elect to account for their interests at fair value.

The investors generally account for their interests in joint ventures using the equity method of accounting. Investments in associates held by venture capital organizations, mutual funds, unit trusts and similar entities are exempt from using the equity method and the investor may elect to measure its investment at fair value.

Proportionate consolidation may be permitted.

Proportionate consolidation is not permitted.