ACCA Financial Reporting (F7) Practice Exam 2026 – Complete Prep Guide

Under IAS 40, which governs the accounting treatment for investment properties, both the cost model and the fair value model can be employed for valuation purposes.

The cost model allows an entity to report investment property at its cost less accumulated depreciation and any accumulated impairment losses. This method is useful for entities that prefer to have a consistent measurement over time, reflecting a historical perspective of the asset.

Conversely, the fair value model permits investment properties to be valued at their fair value at each reporting period, with changes in fair value recognized in profit or loss. This approach provides a more dynamic reflection of the property's value, aligning more closely with market conditions.

The flexibility in choosing either model is a key aspect of IAS 40, as it accommodates different business strategies and market environments. Thus, an entity can select the method that best fits its financial reporting objectives and the nature of its investment properties, which is why both valuation methods are permitted under this standard.