Application Research On Fair Value Measurement Of Investment Property

Along with the rapid development of market economy in our country, the investmentproperty has become an important investment method in listed companies. Before the newaccounting standard for business enterprises promulgated in2006, the enterprise useinvestment properties as the fixed assets or intangible assets and extract depreciation oramortization according to estimated useful time. As the housing market continues to heat upin recent years, the current value of investment property was significantly different from itsbook value. On the other hand, the characteristics of the investment property make it quitedifferent from common fixed asset or intangible asset in terms of earnings and risk. Soaccounting the investment properties as fixed assets or intangible assets cannot reflect its truevalue. To adapting to the competition of economic globalization, the new accountingstandards with reference to the provisions of the international accounting standards will beallocated as a separate type of investment real estate assets, selecting for subsequentmeasurement model, the fair value measurement model or cost measurement model, in orderto providing more fair, objective and comparable accounting information.In order to studying the effect of the investment property principles in six years andhaving a comprehensive understanding of the application status about fair value measurementmodel of investment property, this paper used the SWOT analysis method to study fair valuemeasurement for the normative analysis on the basis of the relevant literature and datacollection. The study found that compared with the cost measurement model, fair valuemeasurement model can improve the correlation of accounting information and polishfinancial statements under the condition of the asset appreciation; While, fair valuemeasurement also has disadvantages such as strict application conditions, high cost,complicated accounting treatment, exacerbating financial index volatility and causing theprofits deviation from the of cash flow. Fair value measurement model is facing a gooddevelopment environment because of the international environmental requirements, the assetappreciation and contract pressure; but fair value measurement model is also suffered thethreat of severe application environment because it is hard to get the fair value information, the degree of acceptance is low and trend of the real estate market in China is not clear.After analyzing the characteristics of fair value measurement model of investmentproperty, this paper used five consecutive years’ annual financial statements of12listedcompanies to study the application results of the fair value measurement model. Analyzing theaccounting process of the fair value measurement model discovered that listed companies inChina exists serious imperfect information disclosure and accounting irregularities. Bycomparing net assets per share, return on equity, earnings per share and the asset-liability ratiounder the fair value measurement model with them under cost measurement model of listedcompany, this paper discovered that in most cases the fair value measurement model hadpositive impact on the financial indicators, but also increased the volatility of business andfinancial performance. In terms of a single listed company, the application results of the fairvalue measurement model were not only affected by the fair value information of investmentproperty, but also affected by various operating conditions of listed companies.Combined with empirical analysis and normative analysis results, this paper come outthe following conclusions: Firstly, the fair value measurement model of investment propertycan optimize the company’s financial indicators and help the company meet the contractrequirements. Secondly, the application results of the fair value measurement model areunstable, which has increased the volatility of the company’s financial indicators. On the otherhand, the non-standard operation decreases the reliability of the accounting information.Thirdly, the value of the investment property appreciated over time and it was stable in fiveyears, which created favorable conditions for the application of fair value measurement model.Fourth, the listed companies had a cautious attitude about using fair value measurementmodel and users of financial statements are skeptical, which posed a threat on the furtherdevelopment of the fair value measurement model.Finally, by combining the advantages, disadvantages, the environmental incentives andthreats with the empirical evidence of the fair value measurement model, this paper putforward countermeasures and suggestions such as strengthening the supervision and guidance,strengthening the internal control, strengthening requirements for disclosure of fair value ofinvestment property information, and both disclosing the results of two kinds of measurementmodel.