ASBE No. 03
Active
Investment Property
Investment Property is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Property held for rental income or appreciation, not owner use
ASBE No. 3 governs PROPERTY (land or buildings, or BOTH) held to EARN rental income, for CAPITAL appreciation, or BOTH – RATHER than for use in the PRODUCTION or supply of GOODS/services, for administrative PURPOSES, or for SALE in the ordinary course of business. WHILE broadly PARALLELING IAS 40's OWN scope internationally, this Standard TAKES a genuinely MORE RESTRICTIVE approach to WHEN the fair value MEASUREMENT model may be applied (Section 5).
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Scope – Held for Rental or Capital Appreciation
A narrower category than property generally
This Standard applies ONLY to property meeting the SPECIFIC "investment property" definition – LEASED-OUT buildings, LEASED-OUT land use rights, and LAND use rights held for CAPITAL appreciation – EXCLUDING owner-occupied property (governed by ASBE No. 4, Fixed Assets) and property HELD for sale in the ORDINARY course of business (governed by ASBE No. 1, Inventories).
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Land Use Rights as Investment Property
A reflection of China's state land-ownership system
GIVEN that ALL land in China is ULTIMATELY owned by the STATE (or, in RURAL areas, by COLLECTIVES), enterprises HOLD "LAND USE RIGHTS" RATHER than freehold OWNERSHIP – WHERE such rights are HELD for LEASING out or CAPITAL appreciation PURPOSES, they FALL within THIS Standard's scope, DISTINCT from HOW land use rights held for the enterprise's OWN operational USE are classified as INTANGIBLE assets under ASBE No. 6.
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Initial Measurement – At Cost
Purchase price plus directly attributable costs
Investment property is INITIALLY measured at COST – the PURCHASE price, PLUS directly ATTRIBUTABLE expenditure (e.g. professional FEES, property TRANSFER taxes) – CONSISTENT with the GENERAL cost-based initial measurement APPROACH applied throughout the ASBE asset standards.
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THE KEY DIVERGENCE – the Fair Value Model Is Tightly Restricted
A genuinely narrower fair value election than IAS 40 permits
UNLIKE IAS 40, which permits an entity to FREELY ELECT the fair value MODEL for ALL its investment property (applied CONSISTENTLY across its ENTIRE investment property portfolio), ASBE No. 3 permits the FAIR VALUE model ONLY where there is CLEAR evidence that an ACTIVE, LIQUID property market EXISTS in the SAME (or a COMPARABLE) location, PROVIDING reliable, OBSERVABLE market PRICES sufficient to MEASURE fair value with CONFIDENCE. WHERE this CONDITION is NOT met – which, in PRACTICE, is the SITUATION for MOST Chinese enterprises, given the STILL-DEVELOPING state of many LOCAL property valuation MARKETS – the COST model is REQUIRED instead. This is a genuinely SIGNIFICANT, WELL-KNOWN measurement divergence from IAS 40.
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The Cost Model – the Practical Default
Depreciation and impairment, much like owner-occupied property
UNDER the COST model, investment property is CARRIED at cost LESS accumulated DEPRECIATION (or amortisation, for LAND use rights) and any ACCUMULATED impairment losses – MEASURED in SUBSTANTIALLY the SAME manner as OWNER-OCCUPIED fixed assets under ASBE No. 4, WITH impairment assessed under ASBE No. 8's NO-REVERSAL framework.
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Why China Restricts the Fair Value Model
Caution around unreliable fair value estimates in developing markets
The POLICY rationale UNDERLYING this RESTRICTION reflects a BROADER, RECURRING theme ACROSS several ASBE asset STANDARDS (also seen in FIXED assets and BIOLOGICAL assets – see the COMPANION posters): a GENERAL caution around PERMITTING fair value MEASUREMENT where reliable, OBSERVABLE market EVIDENCE may NOT genuinely EXIST across China's DIVERSE and UNEVENLY developed regional PROPERTY and asset MARKETS – PRIORITISING the VERIFIABILITY and OBJECTIVITY of historical COST over the POTENTIAL relevance of fair VALUE information.
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Worked Example – Applying the Cost Model
Depreciating a rental property over its useful life
Example: A leased-out office building
A company holds an office building, leased out to a third-party tenant, with a cost of RMB 80,000,000 and an estimated useful life of 40 years, no active market evidence available for a reliable fair value.
The company applies the COST MODEL, recognising annual depreciation of RMB 80,000,000 ÷ 40 = RMB 2,000,000 – carrying the property at cost LESS accumulated depreciation, CONSISTENT with the treatment of an OWNER-OCCUPIED building under ASBE No. 4.
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Worked Example – Qualifying for the Fair Value Model
A rare case where an active market genuinely exists
Example: A property in a major, highly liquid city market
A company holds an investment property in a major city with an unusually active, transparent, and liquid commercial property market, providing frequent, reliable comparable transaction data.
GIVEN the CLEAR evidence of an ACTIVE market, the company may ELECT the FAIR VALUE model for this PROPERTY – measuring it at FAIR VALUE each period, WITH changes recognised DIRECTLY in the INCOME STATEMENT, WITHOUT depreciation – though this remains the LESS common outcome in PRACTICE across the BROADER ASBE preparer base.
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Disclosure Requirements
What ASBE No. 3 requires
Measurement model applied (cost or fair value), and the basis for that electionDepreciation/amortisation method and useful life, where the cost model appliesFair value of investment property, disclosed in the notes even where the cost model is used
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether sufficiently reliable active-market evidence exists to justify the fair value modelClassifying a property as investment property versus owner-occupied or inventory
SIGNIFICANT ESTIMATES
Useful life and depreciation method under the cost modelFair value disclosed in the notes, even when not used for measurement
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Relationship to IAS 40
Comparison – ASBE 3 vs IAS 40
FeatureASBE 3IAS 40
Fair value model availabilityRESTRICTED – requires clear active-market evidenceFREE policy choice, applied consistently across the portfolio
Cost modelThe practical default in most casesAvailable, but genuinely less commonly elected internationally
A GENUINELY significant divergence – in PRACTICE, the VAST majority of Chinese investment property is carried at COST, WHEREAS the fair value model is MORE widely used internationally WHERE IAS 40 applies.
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Statement Mapping
Where every investment property event lands
EventStatement(s) affectedNotes
Depreciation (cost model)BS ISRecognised as an expense each period
Fair value change (fair value model, if elected)BS ISRecognised directly in profit or loss
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 4Fixed Assets – supplies the depreciation and cost-model mechanics this Standard mirrors
ASBE No. 6Intangible Assets – governs land use rights held for the enterprise's own operational use, outside this Standard's scope
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Quick-Reference Glossary
Investment property
Property held to earn rental income, for capital appreciation, or both, rather than for owner use or sale in the ordinary course of business.
Land use rights (土地使用权)
The right to use state- or collectively-owned land for a defined period, held by enterprises in place of freehold land ownership.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 3 Investment Property issued
Operative for periods beginning on or after 1 February 2007