Question

after the initial recognition, mfrs 140 investment property requires an entity to choose either the cost model or fair value model as its accounting policy. briefly explain two (2) differences between these two models.

Answer 1

Investment property used in a business always requires to choose either the cost model of fair value model as its accounting policy.
Valuation of investment property is must required provision in the presentation of financial statements of an entity.

So the difference between the two, cost model and fair value model is as follows :

• Under fair value model the investment properties are required to be measured at fair market value at the end of each accounting year whereas under cost model investment properties required to be remeasured at cost less all the accumulated depreciation or any other losses.
• The decline or increase in fair value is reported in the profit and loss statement whereas in cost model such treatment for accumulated depreciation is not done. Profits or losses are only recognized after the disposal of such investments.