The Application Research Of Fair Value Used In Investment Property

Under the development of global economic integration, the price of real estate continues growing up and increasing number of companies put their idle money into investment property. Thus, how to measure investment property receives more and more intention. Before the promulgation of new accounting standards, investment property is classified as fixed asset or intangible asset. However, investment property is different with operating fixed asset or intangible asset in essential and cannot be confused. The new accounting standard classified investment property as an independent asset and adopts fair value to measure and account investment property. Thus companies can choose between historical cost measurement method and fair value measurement method to measure investment property after recognition. Compared to historical cost measurement method, the fair value measurement method is a new measurement method which reflects companies’ value more actually and exactly, and is more in line with the decision usefulness view.From the year 2007 when the new accounting standard published to now, eight years have been passed. According to the statistics, few companies willing to adopt fair value measurement method nowadays because the fair value measurement method exists many difficulties. Luckily, in the year 2014, the Ministry of Finance published a new accounting standard-No.39 Fair Value Measurement, which guides companies to measure fair value, such as valuation techniques and disclosure issues. As can be seen, along with the continuous improvement of regulations and the maturity of real estate market, the fair value measurement method will gradually replace the historical cost measurement method and will become the major measurement method of invest property after recognition.In this essay, the author will first introduce the background of the application of fair value measurement method and review foreign and domestic scholars’ academic literatures. In the second part, the author will describe the definition of investment property, compare the accounting differences between the two measurement methods and conclude the advantages and disadvantages of fair value measurement method, this part is the theoretical basis for the next part. Next the author collects the statistics of companies who own investment property from 2007 to 2013 and analyzes the application situation from different aspects. And then the author concludes the difficulties for the application of fair value measurement method nowadays. In the third part, the essay will analyze the motivation and financial impact among companies which have applied the fair value measurement method. And according to the above analysis, the author concludes the disadvantages of fair value measurement method in investment property. In the fourth part, the essay uses the company ShenGuoShang as an example to discuss the specific application situation of fair value measurement method, including procedure, motivation and financial impact. In the final part, the author puts forward several suggestions, including adjusting the accounting standard orientation, increasing accounting disclosure, strengthening government supervision, improving accountant’s occupational level and building information platform to share prices of real estate.