The IFRS Interpretations Committee reported to the IASB that practice differed in delineating the scope of IFRS 3 Business Combinations and IAS 40 Investment Property:
- Some considered both Standards as mutually exclusive. They view property, together with any associated insignificant ancillary services, as being a single 'unit of account' and they consider this unit of account to be one asset, called 'investment property'.
- Others did not view IFRS 3 and IAS 40 as being mutually exclusive; nor did they view the definitions of a business as defined in Appendix A of IFRS 3 and investment property as defined in paragraph 5 of IAS 40 as being interrelated. They think that an entity acquiring investment property has to determine whether it meets both definitions.
The IASB concluded that IFRS 3 and IAS 40 are not mutually exclusive. It proposes to amend IAS 40 to state explicitly that judgement is also needed to determine whether the transaction is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination in the scope of IFRS 3 that includes an investment property. That judgement is not based on paragraphs 7-15 of IAS 40 but instead is based on the guidance in IFRS 3.
This proposed amendment will be included as part of the Annual Improvements Cycle 2011-2013.