217 – Investment properties

 

1. Rules for accounting

 1.1 This account is used to record current value and increases or decreases in investment properties of an enterprise according to their historical costs, which is kept records similarly to fixed assets. Investment property includes land-use rights, a building or part of a building or both, infrastructure held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation, rather than for:

- Use in the production or supply of goods or services or for administrative purposes; or

- Sale in the ordinary course of business.

1.2. This account is used to record value of investment properties meeting recognition criteria of investment properties. Property held for sale in the ordinary course of business or in the process of construction or development for such sale, owner-occupied property, or property that is being constructed or developed for future use as investment property shall not be recorded to this account.

Investment property shall be recognized as an asset when the following conditions are met:

- It is probable that the future economic benefits associated with the investment property will flow to the enterprise; and

- The cost of the investment property can be measured reliably.

1.3. An investment property shall be recorded in this account according to their cost. Cost of an investment property means the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an investment property at the time of its acquisition or construction.

- Depending on cases, cost of an investment property shall be determined as follows:

The cost of a purchased investment property comprises its purchase price, and any directly-attributable expenses, such as: professional fees for legal services, property transfer taxes and other transaction costs, etc.

+ If payment for an investment property is deferred, its cost is the cash price equivalent. The difference between this amount and the total payments is recognized as interest expense over the period of credit, except when the difference is charged to cost of investment property in accordance with VAS ―Borrowing Costs‖;

+ The cost of a self-constructed investment property is its actual cost and directly-attributable expense on the date when the construction or development is completed;

+ If a finance lease property for operating lease meets recognition criteria of an investment property, the cost of such investment property at the initial lease shall comply with VAS ―Leases‖.

- The cost of an investment property is not increased by:

+ Start-up costs (unless they are necessary to bring the property to its working condition);

+ Initial operating losses incurred before the investment property achieves the planned level of occupancy;

+ Abnormal amounts of wasted material, labor or other resources incurred in constructing or developing the property.

1.4. Subsequent expenditure relating to an investment property that has already been recognized should be added to the net-book value of the investment property when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing investment property, will flow to the enterprise and an increase in the cost of the investment property shall be recorded.

1.5. During the operating lease period, the investment property must be depreciated and recorded to business costs (including postponement period). The enterprise may estimate the useful life and determine the appropriate depreciation method according to owner-occupied property in kind.

- In case the enterprise records revenue from total advances from investment property lease, total estimated cost equivalent to the revenue shall be recorded (including calculated depreciation in advance).

- The cost of an investment property includes: investment property depreciation expenses and directly-attributable expenses, such as: outsourcing expense, salaries of employees in charge of management of the leased property, depreciation expense on auxiliary construction serving the investment property lease.

1.6. Property held for capital appreciation shall not be depreciated. In case it is evident that the investment property falls against market fair value and the decrease is determined reliably, the decrease in cost of the investment property and the loss shall be recorded to costs of goods sold (similarly to provision for properties held for sale).

1.7. With regard to purchased investment properties which must be constructed, innovated or upgraded before being used for investment purpose, the value of the property, purchasing costs and constructing, innovating or upgrading costs shall be recorded to account 241 ―Construction in progress‖. Upon the construction, innovation or upgrading completes, the cost of the investment property must be determined and transferred to account 217 ―Investment property".

1.8. The transfer from owner-occupied property to investment property or from investment property to owner-occupied property or inventory shall be made only if there is any change in use purpose as following cases:

- Investment property shall be converted into owner-occupied property when the owner begins to use this property;

- Investment property shall be converted into inventory when the owner begins to sell it;

- Owner-occupied property shall be converted into investment property when the owner finishes using that property and leasing it to other party for operation;

- Inventory shall be converted into investment property when the owner begins to lease it to other party for operation;

- Construction property shall be converted into investment property at the end of the construction period and put into investment period (during the construction period, it shall be recorded to VAS "Tangible fixed assets").

The transfer of use purpose between investment property and owner-occupied property or inventory does not change the book value of the transferred asset and the cost of the property for their evaluation or for preparation of financial statements.

1.9. When the enterprise decides to sell an investment property without repair, innovation or upgrading period, the investment property still be recorded to account 217 ―Investment property‖ until it is sold (not converted into inventory).

1.10. The whole purchase price of an investment property shall be recorded to revenues (VAT-exclusive prices regarding enterprises subject to VAT using credit-invoice method). If payment for an investment property is deferred, the consideration received is recognized initially at the cash price equivalent (VAT-exclusive prices regarding enterprises subject to VAT using credit-invoice method). The difference between the nominal amount of the consideration and the cash price equivalent is recognized as interest revenue.

1.11. A decrease in investment property shall be recorded in following cases:

- Converting use purposes from investment property to inventory or owner-occupied property;

- Selling or disposing investment property;

- Returning investment property to the lessor at the end of the financial lease.

2. Structure and contents of account 217 – Investment property

Debit: Increases in costs of investment property in the period.

Credit: Decreases in costs of investment property in the period.

Debit balance: Costs of existing investment property.

3. Method of accounting for several major transactions

3.1. Purchase of investment properties:

a) If the instalment payment is made and the input VAT is deductible, the following accounts shall be recorded:

Dr 217 – Investment property

Dr 133 – Deductible VAT (1332)

Cr 111, 112.

If the VAT is not deductible, the historical cost of the investment property shall include VAT.

b) If the deferred payment is made:

- And the input VAT is deductible; the following accounts shall be recorded:

Dr 217 – Investment property (VAT-exclusive cash prices)

Dr 242 – Prepaid expenses (deferred interest shall equal (=) total payment minus (-) cash price minus (-) input VAT)

Dr 133 – Deductible VAT (1332)

Cr 331 – Trade payables

If the VAT is not deductible, the historical cost of the investment property shall include VAT.

- Periodically, when calculating and allocating the interest payable of the purchased investment property in deferred payment, the following accounts shall be recorded:

Dr 635 – Financial expenses.

Dr 242 – Prepaid expenses

- When making payment to seller, the following accounts shall be recorded:

Dr 331 – Trade payables

Cr 515 – Financial income (discount obtained due to early payment, if any)

Cr 111, 112, etc.

3.2. Acquisition of investment property due to completion of:

- When incurring construction expenses of investment property, they shall be recorded to Dr 241 ―Construction in progress‖ according to relevant documents and materials (similarly to construction of tangible fixed assets, refer to account 211 ―Tangible fixed asset‖).

- When the construction in progress is completed and the investment asset is converted into investment property, the following accounts shall be recorded according to the transferred documents:

Dr 217 – Investment property

Cr 241 – Construction in progress.

3.3. When converting owner-occupied property or inventory to investment property, the following accounts shall be recorded according to documents on convert of use purposes:

a) When converting a fixed asset into an investment property:

Dr 217 – Investment property

Cr 211 – Tangible fixed asset, or

Cr 213 – Intangible fixed assets.

And, when transferring accumulated depreciation, the following accounts shall be recorded:

Dr 2141, 2143.

Cr 2147 – Depreciation of investment property (property for lease)

Cr 217 – Investment property (property held for capital appreciation).

b) When converting from inventory into investment property, the following accounts shall be recorded according to the documents on convert of use purposes:

Dr 217 – Investment property

Cr 1557, 1567.

If the investment property is used for lease, it shall be depreciated as prescribed. If the investment property is held for capital appreciation, it shall not be depreciated, but the decrease in the investment property shall be determined If the loss due to depreciation is determined reliably, the loss shall be recorded to costs of goods sold and the decrease in cost of the investment property shall be recorded.

3.4. When renting an asset under finance lease in order to lease them under one or multiple operating leases, if such asset meets recognition criteria of investment property:

a) According to financial lease and relevant documents, the following accounts shall be recorded:

Dr 217 – Investment property

Cr 111, 112, 3412.

(Lease payments shall be made upon the receipt of financial lease invoice as prescribed in account 212 ―Financial lease fixed assets‖).

b) When the finance lease expires

- When returning financial lease investment property which is classified as investment property, the following accounts shall be recorded:

Dr 2147 – Depreciation of investment properties

Dr 632- Costs of goods sold (difference between cost of the leased investment property and accumulated depreciation)

Cr 217 – Investment property (cost).

- When purchasing a financial lease investment property which is classified as an investment property, an increase in investment property (additional payables) shall be recorded as follows:

Dr 217 – Investment property

Cr 111, 112, etc

- When purchasing a financial lease property which is classified as an investment property used for operation or management of the enterprise, it shall be classified as an owner-occupied property and the following accounts shall be recorded:

Dr 211 – Tangible fixed asset, or

Dr 213 – Intangible fixed assets

Cr 217 – Investment property

Cr 111, 112, (additional payables).

And, when transferring accumulated depreciation, the following accounts shall be recorded:

Dr 2147 – Depreciation of investment properties

Cr 2141, 2143.

3.5. When subsequent expenses relating to an investment property occur after initial recognition of investment property, if they satisfy the criteria to be capitalized or they are necessary to make the investment property to be ready for use, an increase in the cost of the investment property shall be recorded:

- When subsequent expenses (upgrading or innovating) relating to an investment property actually occurring after initial recognition of investment property shall be recorded as follows:

Dr 241 – Construction in progress.

Dr 133 – Deductible VAT (1332)

Cr 111, 112, 152, 331, etc.

- When completing upgrading, innovation, etc of investment property, an increase in the cost of the investment property shall be recorded as follows:

Dr 217 – Investment property

Cr 241 – Construction in progress.

3.6. Accounting for sale or disposal of investment property;

a) Recognition of revenue from sale or disposal of investment property:

- If the output VAT payable is separable when the investment property is sold or disposed, the following accounts shall be recorded:

Dr 111, 112, 131 (total payment)

Cr 511 – Revenues (5117) (VAT-exclusive disposal prices)

Cr 3331 – VAT payables (33311).

- If the output VAT payable is inseparable when the investment property is sold or disposed, the revenue shall include output VAT payable. Periodically, the VAT payables shall be determined and decreases in revenues shall be recorded as follows:

Dr 511 - Revenues

Cr 3331 – VAT payables.

b) Decreases in the cost and residual value of sold or disposed investment property shall be recorded as follows:

Dr 214 – Depreciation of fixed assets (2147 – Depreciation of investment property - if any)

Dr 632 – Costs of goods sold (residual value of investment property)

Cr 217 – Investment property (cost of investment property).

3.7. Accounting for investment property lease

a) Revenues from investment property lease shall be recorded as follows:

Dr 111, 112, 131

Cr 511 – Revenues (5117).

b) Recognition of the cost of investment property lease

- When collecting total cost of investment property, the following accounts shall be recorded:

Dr 632 – Costs of goods sold

Cr 214 – Accumulated depreciation (2147)

Cr 111, 112, 331, etc.

- If the total cost of investment property is not collected because a part of the project is not completed (leasing out the completed part), the cost shall be estimated similarly to estimating method applying to sale of property.

3.7. Converting investment property into inventory or owner-occupied property:

a) If the investment property is converted into inventory when the owner decides to repair, innovate or upgrade it for sale:

- When there is a decision on repair, innovation or upgrade of investment property for sale, the residual value of the investment property shall be transferred to account 156 ―Goods‖, the following accounts shall be recorded:

Dr 156 – Goods (Account 1567 – Residual value of investment property)

Dr 214 – Depreciation of fixed assets (2147 – accumulated depreciation - if any)

Cr 217 – Investment property (cost).

- When incurring expenses incurred from repair, innovation or upgrade for sale, the following accounts shall be recorded:

Dr 154 – Work in progress

Dr 133 – Deductible VAT (if any)

Cr 111, 112, 152, 334, 331, etc.

- When the repairing, innovation and upgrading are completed for sale, all the expenses shall be added to the cost of the property for sale, the following accounts shall be recorded:

Dr 156 – Goods (1567)

Cr 154 – Work in progress.

b) When converting investment property into owner-occupied property, the following accounts shall be recorded:

Dr 211, 213.

Cr 217 – Investment property.

And, the following accounts shall be recorded:

Dr 2147 – Depreciation of investment properties (if any)

Cr 2141, 2143.

3.8. If the investment property is held for capital appreciation, it shall not be depreciated, but the loss due to depreciation shall be determined (similarly to determination of provision for decline in value of properties held for sale). If the loss is determined reliably, the following accounts shall be recorded:

Dr 632 – Costs of goods sold

Cr 217 – Investment property.

Source: Circular 200