CAF-1 · Chapter 4 · Question 3 of 15
An entity owns a multi-story building. It occupies 5% of the space for its own administrative offices and leases out the remaining 95% to independent tenants. The portions cannot be sold separately. How should the building be classified?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The entire building must be classified as Investment Property (IAS 40).
Explanation
If portions cannot be sold separately, the property is investment property only if an insignificant portion is held for use in the production/supply of goods or administrative purposes. Since 5% is insignificant, the whole building falls under IAS 40.
More IAS 40 Investment Property MCQs
- Q5If a company owns a building and leases it out to an independent third party under an operating lease, how is it classified?
- Q6How should an entity account for a property that has both an investment property portion and an owner-occupied portion, if the portions…
- Q7Under IAS 40, which of the following of the following costs should NOT be included in the initial cost of an investment property?
- Q8Under the fair value model for investment property, how are changes in fair value treated?
- Q9If an entity chooses the cost model for its investment properties, what must it still disclose?