Investment Properties
Expert-defined terms from the Advanced Certificate in Consolidation Reporting (United Kingdom) course at London School of Business and Administration. Free to read, free to share, paired with a globally recognised certification pathway.
Accounting Standards, in the context of Investment Properties, refer to the rule… #
The UK Generally Accepted Accounting Practice (UK GAAP) and International Financial Reporting Standards (IFRS) provide the framework for accounting for investment properties.
Accumulated Depreciation is the total decrease in value of an investment… #
It is calculated by subtracting the residual value from the cost of the property and then multiplying by the depreciation rate.
Amortisation is the process of allocating the cost of an intangible asset… #
It involves systematically writing off the cost of the asset as an expense in the income statement.
Annual Rental Income refers to the total rental income earned from an inv… #
It is an important metric used to evaluate the performance of an investment property and calculate its yield.
Asset Class, in the context of investment properties, refers to a category of in… #
Each asset class has its own unique risks and returns.
Asset Management involves the administration and management of inv… #
It includes tasks such as rent collection, property maintenance, and tenant management.
Balance Sheet is a financial statement that provides a snapshot of an entity's f… #
Investment properties are typically reported on the balance sheet at their fair value or cost, depending on the accounting standard used.
Breach of Contract occurs when one party fails to fulfil their obligation… #
This can result in penalties or damages being awarded to the other party.
Capital Allowances are tax deductions available to entities that invest i… #
They allow entities to claim a proportion of the asset's cost against their taxable income.
Capital Expenditure refers to the expenditure incurred on the purchase, c… #
It is typically capitalised and depreciated over the asset's useful life.
Capital Gains Tax is a tax levied on the profit made from the sale of an… #
The tax is calculated on the gain made, which is the difference between the sale price and the original purchase price.
Cash Flow is the inflow or outflow of cash and cash equivalents of… #
It is an important metric used to evaluate the liquidity and solvency of an entity.
Commercial Property refers to an investment property used for business purpos… #
Each type of commercial property has its own unique characteristics and risks.
Consolidated Financial Statements are financial statements that combine the fina… #
Consolidated Financial Statements are financial statements that combine the financial information of a parent entity and its subsidiaries, presenting a comprehensive picture of the group's financial position and performance.
Cost Method is an accounting method used to value investment properties at their… #
This method is simple but may not reflect the property's current market value.
Current Assets are assets that are expected to be realised or sold within… #
They include cash, inventory, and accounts receivable.
Current Liabilities are liabilities that are expected to be settled withi… #
They include accounts payable, accruals, and tax liabilities.
Depreciation is the systematic allocation of the cost of a tangible asset… #
It represents the decrease in value of the asset due to wear and tear, obsolescence, or other factors.
Direct Property Investment involves the direct ownership of an investment… #
Direct Property Investment involves the direct ownership of an investment property, where the investor has full control over the property and is responsible for its management and maintenance.
Discounted Cash Flow (DCF) is a valuation method used to estimate the pre… #
It takes into account the time value of money and the risk associated with the investment.
Disposal of Assets occurs when an entity sells or transfers ownership of… #
The disposal may result in a gain or loss, which is recognised in the income statement.
Earnings Before Interest and Tax (EBIT) is a metric used to evaluate an entity's… #
It is calculated by adding back interest and tax expenses to the net income.
Economic Life is the period during which an investment property is expect… #
It may be shorter than the property's physical life.
Effective Yield is the return on investment that an investor can expect t… #
Effective Yield is the return on investment that an investor can expect to earn from an investment property, taking into account the rental income, expenses, and capital appreciation.
Equity is the residual interest in an entity's assets after deducting its… #
It represents the ownership interest in the entity and is typically financed by shareholders.
Equity Method is an accounting method used to value investments in associates… #
The investment is initially recorded at cost and then adjusted for the investor's share of the associate's profit or loss.
Fair Value is the price that would be received to sell an asset or paid t… #
It is a key concept in accounting for investment properties.
Financial Instruments are contracts that give rise to a financial asse… #
They can be used to hedge risks associated with investment properties.
Financial Reporting Standards, such as UK GAAP and IFRS, provide the framework f… #
Financial Reporting Standards, such as UK GAAP and IFRS, provide the framework for financial reporting of investment properties, ensuring consistency and comparability across different entities.
Fixed Assets are assets that are expected to be used for more than a year… #
They are typically capitalised and depreciated over their useful life.
Freehold Property refers to an investment property where the owner has absolu… #
Freehold Property refers to an investment property where the owner has absolute ownership of the land and any buildings on it, with no time limit on the ownership.
Functional Currency is the currency of the primary economic environment i… #
It is used to measure the entity's financial performance and position.
Gain on Sale is the profit made from the sale of an investment property,… #
It is recognised in the income statement.
Going Concern is an assumption that an entity will continue to operate fo… #
Going Concern is an assumption that an entity will continue to operate for the foreseeable future, allowing it to realise its assets and settle its liabilities in the normal course of business.
Gross Yield is the ratio of annual rental income to the purchas… #
It is a simple metric used to evaluate the performance of an investment property.
Historic Cost is the original purchase price of an investment property, w… #
Historic Cost is the original purchase price of an investment property, which is used as the basis for accounting for the property under the cost model.
Impairment Loss is the decrease in value of an investment property that i… #
Impairment Loss is the decrease in value of an investment property that is deemed to be permanent, resulting from a decline in market value or other factors.
Income Statement is a financial statement that presents an entity's revenues<… #
Investment properties are typically reported on the income statement at their fair value or cost.
Indirect Property Investment involves investing in a property fund or … #
Indirect Property Investment involves investing in a property fund or real estate investment trust (REIT), which provides a way to invest in property without directly owning physical assets.
Initial Recognition is the process of recognising an investment property… #
Initial Recognition is the process of recognising an investment property on the balance sheet for the first time, which involves measuring its fair value or cost.
Intangible Assets are non #
physical assets that have a useful life and are used to generate economic benefits, such as patents, copyrights, or trademarks. They are typically amortised over their useful life.
Interest Rate is the rate at which interest is paid on a loan or inves… #
Interest Rate is the rate at which interest is paid on a loan or investment, which can affect the cash flows and value of an investment property.
Internal Rate of Return (IRR) is a metric used to evaluate the performance</i… #
Internal Rate of Return (IRR) is a metric used to evaluate the performance of an investment property, which represents the rate at which the net present value of the property's cash flows equals zero.
International Financial Reporting Standards (IFRS) are a set of accounting st… #
International Financial Reporting Standards (IFRS) are a set of accounting standards that provide a framework for financial reporting, ensuring consistency and comparability across different entities.
Investment Property is a property held to earn rental income or for ca… #
It is typically reported on the balance sheet at its fair value or cost.
Investment Property Fund is a type of collective investment scheme that i… #
Investment Property Fund is a type of collective investment scheme that invests in a portfolio of investment properties, providing a way for investors to gain exposure to the property market.
Joint Venture is a business arrangement where two or more parties collaborate… #
The parties share the risks and rewards of the venture.
Landlord is the owner of an investment property who grants a lease … #
Landlord is the owner of an investment property who grants a lease to a tenant, allowing them to use the property in exchange for rental income.
Lease is a contract between a landlord and a tenant that grants the tenan… #
Lease is a contract between a landlord and a tenant that grants the tenant the right to use an investment property for a specified period in exchange for rental income.
Leasehold Property refers to an investment property where the owner has a lea… #
Leasehold Property refers to an investment property where the owner has a lease or tenancy agreement that grants them the right to use the property for a specified period.
Liabilities are debts or obligations that an entity is expected to… #
Liabilities are debts or obligations that an entity is expected to settle in the future, such as loans, accounts payable, and tax liabilities.
Loan #
to-Value (LTV) Ratio is the ratio of the amount borrowed to the value of an investment property, expressed as a percentage. It is used to evaluate the level of debt associated with the property.
Loss on Sale is the deficit incurred from the sale of an investment prope… #
Loss on Sale is the deficit incurred from the sale of an investment property, which is calculated by subtracting the sale price from the carrying amount.
Market Value is the price that would be received to sell an investment pr… #
Market Value is the price that would be received to sell an investment property in an orderly transaction between market participants at the measurement date.
Net Operating Income (NOI) is the income earned from an investment proper… #
It is used to evaluate the performance of the property.
Net Present Value (NPV) is the present value of an investment property's… #
It is used to evaluate the viability of an investment.
Non #
Current Assets are assets that are not expected to be realised or sold within a year or within the entity's normal operating cycle, such as investment properties, plant and equipment, and vehicles.
Non #
Current Liabilities are liabilities that are not expected to be settled within a year or within the entity's normal operating cycle, such as loans and bonds.
Operating Expenses are costs incurred in the day #
to-day operation of an investment property, such as property taxes, insurance, and maintenance. They are typically deducted from rental income to calculate net operating income.
Opportunity Cost is the value of the next best alternative that is given… #
It is used to evaluate the relative value of different investment opportunities.
Owner #
Occupied Property is a property that is used by the owner for their own business purposes or as their residence, rather than being held for rental income or capital appreciation.
Passive Investment is an investment strategy where the investor takes a hands #
off approach and does not actively manage the investment property, often investing through a fund or REIT.
Property Appraiser is an independent expert who provides an opinion on th… #
Property Appraiser is an independent expert who provides an opinion on the value of an investment property, taking into account factors such as location, condition, and market trends.
Property Management involves the administration and management of… #
Property Management involves the administration and management of investment properties to maximise their value and return on investment.
Property Valuation is the process of determining the value of an i… #
Property Valuation is the process of determining the value of an investment property, which can be done using various methods such as the income approach, comparable sales approach, or cost approach.
Real Estate Investment Trust (REIT) is a type of investment vehicle that… #
Real Estate Investment Trust (REIT) is a type of investment vehicle that allows individuals to invest in a portfolio of investment properties, providing a way to gain exposure to the property market without directly owning physical assets.
Rental Income is the income earned from an investment property through re… #
It is a key component of the property's cash flows and is used to evaluate the performance of the property.
Rental Yield is the ratio of annual rental income to the purcha… #
Rental Yield is the ratio of annual rental income to the purchase price or value of an investment property, expressed as a percentage.
Residual Value is the estimated value of an investment property at the en… #
Residual Value is the estimated value of an investment property at the end of its useful life, which is used to calculate depreciation and amortisation.
Return on Investment (ROI) is a metric used to evaluate the performance o… #
Return on Investment (ROI) is a metric used to evaluate the performance of an investment property, which represents the return earned on the investment as a percentage of the cost.
Revenue Recognition is the process of recognising revenue earned from an… #
It involves applying the revenue recognition criteria to determine when revenue can be recognised.
Risk Management involves the identification , assessment , and mi… #
Risk Management involves the identification, assessment, and mitigation of risks associated with investment properties, such as market risk, credit risk, and operational risk.
Sale and Leaseback is a transaction where an entity sells an investment property… #
Sale and Leaseback is a transaction where an entity sells an investment property and then leases it back from the buyer, allowing the entity to release cash from the property while still using it.
Sensitivity Analysis is a technique used to evaluate the impact of change… #
Sensitivity Analysis is a technique used to evaluate the impact of changes in assumptions or variables on the value of an investment property, such as changes in interest rates or rental income.
Straight #
Line Method is a depreciation method that involves allocating the cost of an investment property evenly over its useful life, resulting in a consistent annual depreciation charge.
Tax Depreciation is the tax deduction available to entities that invest i… #
It allows entities to claim a proportion of the asset's cost against their taxable income.
Tenant is the occupant of an investment property who has been granted a <… #
Tenant is the occupant of an investment property who has been granted a lease by the landlord, allowing them to use the property in exchange for rental income.
Time Value of Money is the concept that money received today is worth mor… #
It is used to evaluate the present value of future cash flows.
Total Return is the return earned on an investment property, which includ… #
Total Return is the return earned on an investment property, which includes both income return (such as rental income) and capital return (such as capital appreciation).
UK Generally Accepted Accounting Practice (UK GAAP) is a set of accounting st… #
UK Generally Accepted Accounting Practice (UK GAAP) is a set of accounting standards that provide a framework for financial reporting in the UK, ensuring consistency and comparability across different entities.
Useful Life is the period during which an investment property is expected… #
It is used to calculate depreciation and amortisation.
Valuation Method is a technique used to determine the value of an… #
Valuation Method is a technique used to determine the value of an investment property, such as the income approach, comparable sales approach, or cost approach.
Yield is the return earned on an investment property, which can be expres… #
It is a key metric used to evaluate the performance of an investment property.