Question

A building classified as part of PPE is accounted for differently from a building classified as Investment Property. The cost and fair value models are available for both, but whereas PPE is depreciated under both models, Investment Property is depreciated only under the cost model. Discuss the logic or illogic of these accounting rules.

Answer 1

Answer Normally a building part as Property, plant and equipment should be classify tangible, fixed, noncurrent assets if it used in production or providing service during business. Than it should be shows at historical cost less depreciation value because it held in business for production of goods or providing services, not for resale. If business invest money in Property, plant and equipment for purpose of no use in production or nor provide service during business   and held as investment than it should be classify as investment (long or short term) head. Because the investment made in building is held for resale. Than it should normally shows as cost value to a long term investment and fair value to a short term investment. However we can get cost and fair value under both situations but purpose are different in both situations.