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 investment property under IAS 40
As property, plant or equipment under IAS 16
There is not enough information to make a determination
As an item of inventory under IAS 2
Brusky & Fine should classify the site as follows:
As an investment property under IAS 40
The fact that Brusky & Fine provides cleaning, maintenance, and security services for the tenants does not change the classification of the retail development. Since the property is leased to tenants and is held to earn rental income, it meets the definition of investment property under IAS 40, Investment Property. The ongoing development to add larger retail units for leasing to additional tenants supports this classification, as the primary purpose of the property is to generate rental income, which is a key characteristic of investment property.
