Brusky & Fine owns a retail development where the units are let out to various tenants, but the group provides cleaning, maintenance, and security services and maintains premises on the site for these purposes. These services are considered to be insignificant to the arrangement as a whole. Brusky & Fine decides to further develop the retail development to add larger retail units. These larger units will be leased to other tenants once construction is complete.
How should Brusky & Fine classify the site?
As an item of inventory under IAS 2
As property, plant or equipment under IAS 16
As an investment property under IAS 40
There is not enough information to make a determination
Based on the information provided, Brusky & Fine should classify the site as:
As an investment property under IAS 40
The retail development is primarily held to earn rental income, which aligns with the definition of investment property under IAS 40 – Investment Property. The fact that the company provides ancillary services like cleaning, maintenance, and security, even though insignificant to the arrangement, does not change the primary purpose of the property, which is to generate rental income. The decision to further develop the site to add larger retail units for leasing to tenants supports the classification of the property as investment property.
