AASB 140 Investment Property: Does the Cost Model Save You a Valuation?

Most summaries of AASB 140 present a choice between the fair value model and the cost model, and leave the impression that the cost model is how you avoid paying for a valuation each year.

Whether it does depends on which reporting tier you report under, and almost every short explanation skips that. References are to compiled AASB 140, compilation no. 7 (31 December 2022), which applies to annual periods beginning on or after 1 January 2023 and before 1 January 2027.

First, check the property is inside AASB 140 at all

Paragraph 5 defines investment property as property “held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both”, rather than for use in producing goods or services, for administrative purposes, or for sale in the ordinary course of business. Paragraph 7 gives the distinguishing feature — investment property “generates cash flows largely independently of the other assets held by an entity” — and sends owned owner-occupied property to AASB 116 and leased owner-occupied property to AASB 16.

Classification is less obvious than it looks in three situations: mixed-use buildings (paragraph 10), properties where the owner supplies services to occupants (paragraphs 11–13, which is why an owner-managed hotel is not investment property), and property leased to a parent or fellow subsidiary, which paragraph 15 classifies differently in consolidated and individual statements. Where it is difficult, paragraph 14 leaves it to judgement and paragraph 75(c) requires the criteria to be disclosed. Aus9.1 takes not-for-profit property held “to meet service delivery objectives” out of AASB 140 and into AASB 116.

The two models

Paragraph 30 requires an entity to choose the fair value model or the cost model and apply it “to all of its investment property” — subject to one carve-out at paragraph 32A, for property backing liabilities whose return is linked to those assets, which mainly concerns funds and insurers.

That choice runs close to one way. A voluntary change of accounting policy is permitted only where it gives “reliable and more relevant information”, and paragraph 31 adds that it is “highly unlikely that a change from the fair value model to the cost model will result in a more relevant presentation”. Not a prohibition — but an argument you should expect to lose.

Does the cost model avoid a valuation?

Paragraph 32 opens with the sentence most summaries leave out:

“This Standard requires all entities to measure the fair value of investment property, for the purpose of either measurement (if the entity uses the fair value model) or disclosure (if it uses the cost model).”

Notice that the paragraph states its own purpose. For a cost-model entity the reason given is disclosure — and that requirement is paragraph 79(e), obliging a cost-model entity to disclose “the fair value of investment property”. A Tier 1 entity on the cost model therefore changes where the number appears, from balance sheet to note, but still needs it.

Tier 2 is different, and this is the part worth knowing. Appendix A to AASB 140 — “an integral part of the Standard” — provides that paragraphs 74–79 “do not apply to entities preparing general purpose financial statements that apply AASB 1060”. AASB 1060 confirms it from the other side: its comparison table lists, against AASB 140, paragraphs superseded (“74–79”) and paragraphs surviving as presentation requirements (“none”).

So the obligation has to be re-tested against AASB 1060, and it is not there. Paragraph 134 governs “investment property carried at cost less accumulated depreciation and impairment” and calls for measurement bases, depreciation methods, useful lives, carrying amounts and a reconciliation. Fair value is not on that list. The only fair value point for cost-model property is paragraph 135(c), which bites where fair value cannot be measured reliably.

One objection deserves answering, because an auditor will raise it. AASB 1060 paragraph 4 preserves “all the recognition and measurement requirements in Australian Accounting Standards”, applying AASB 1060 “in relation to disclosure requirements only” — and paragraph 32 uses the word measure. On the text that does not save the obligation: the measurement rule for a cost-model entity is paragraph 56, which requires measurement “in accordance with the requirements in AASB 116 for the cost model” and says nothing about fair value. Paragraph 32 describes the combined effect of the two rules rather than adding a standalone measurement duty.

Two qualifications, and both matter.

Tier 2 is not simply chosen. It is an election under AASB 1053, open to entities that qualify — AASB 1060 applies to entities that “elect to apply the Tier 2 reporting requirements under AASB 1053”. Confirm you are eligible before relying on any of this.

Losing the recurring disclosure is not the same as never needing a fair value. Property carried at cost remains subject to impairment — AASB 1060 lists “investment property accounted for by the cost method” among the classes needing impairment disclosures — and an impairment test can call for fair value less costs of disposal. The tier point removes an annual line in the notes; it does not retire the question.

Paragraph 53 offers a narrow exception, and for most readers it is not merely narrow but shut. The presumption that fair value can be measured reliably is rebuttable only on “clear evidence” at the point an entity “first acquires an investment property (or when an existing property first becomes investment property after a change in use)”, and only where the market is inactive and “alternative reliable measurements of fair value… are not available”. Paragraph 53B confirms it “can be rebutted only on initial recognition” — so a market that thins around a property you already hold is no route out, which paragraph 55 says in terms. And inside the exception, paragraph 79(e) still asks for “the range of estimates within which fair value is highly likely to lie”.

What the standard says about valuers

No independent valuation is mandated. Paragraph 32 continues: an entity “is encouraged, but not required”, to base fair value on “a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued”.

What is mandated, for Tier 1, is candour about it. Paragraph 75(e) requires disclosure of the extent to which fair value rests on such a valuation, and then: “If there has been no such valuation, that fact shall be disclosed.” A Tier 2 entity holding investment property at fair value meets the same requirement through AASB 1060 paragraph 132(b); at cost it has neither, paragraph 75 sitting inside the range Appendix A switches off.

On measurement, AASB 140 assumes AASB 13 rather than commanding it — no paragraph directs an entity to apply it in terms. The paragraph 5 definition cross-refers, and paragraph 40 frames the exercise as measuring fair value “in accordance with AASB 13”, requiring the figure to reflect, “among other things”, rental income from current leases and the assumptions market participants would use.

Methodology

• AASB 140, compilation no. 7 (31 December 2022, F2023C00417), applying to annual periods beginning on or after 1 January 2023 and before 1 January 2027 — read directly; all paragraph references are to it. The later compilation applying from 1 January 2027, flagged by the AASB as not-for-profit and superannuation related, was not used.
• AASB 1060 Simplified Disclosures, compilation no. 7 (31 December 2024, F2025C00209), applying from 1 January 2025 — read directly for paragraphs 4, 132, 134, 135, 170 and the comparison table.
• We did not read AASB 1053 or AASB 136, so Tier 2 eligibility and impairment mechanics are flagged here rather than explained.
• We are valuers, not accountants or auditors. Whether a requirement bites for a particular entity is for that entity and its auditor, and nothing here is a reason to skip that advice.

Frequently asked questions

If I use the cost model, do I still need a fair value?

It depends on your reporting tier, so establish that first. A Tier 1 entity does: paragraph 79(e) requires an entity applying the cost model to disclose the fair value of its investment property. A Tier 2 entity applying AASB 1060 has no recurring obligation to disclose it, because Appendix A to AASB 140 switches off paragraphs 74–79 and AASB 1060’s cost-model disclosure list at paragraph 134 does not reintroduce fair value. That is not a blanket exemption — a fair value figure can still be needed for an impairment test, and Tier 2 is an election under AASB 1053 that not every entity qualifies to make. Confirm both points with your auditor.

Does AASB 140 require an independent valuer?

No. Paragraph 32 says an entity “is encouraged, but not required” to use a qualified independent valuer. For a Tier 1 entity, paragraph 75(e) then requires disclosure of the extent to which fair value rests on such a valuation, and adds: “If there has been no such valuation, that fact shall be disclosed” — the valuation is optional, disclosing its absence is not. A Tier 2 entity carrying investment property at fair value has the same disclosure through AASB 1060 paragraph 132(b); a Tier 2 entity carrying it at cost has neither.

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This article is general information about Australian accounting standards as they affect property valuation — it is not accounting, audit or financial advice. Last verified 1 August 2026.

See also: Financial Reporting Valuation · AASB 116 summary · AASB 13 fair value measurement · AASB 13, 116 and 140 compared