Initial value of the investment property 

For the correct recognition of a investment property in the accounts, it is important to correctly determine its initial value. This is not only the original purchase price/cost of the asset, but also the additional costs associated with the purchase. From the correctly determined initial value, which may be different for balance sheet and tax purposes, depreciation write-offs are made which are booked as tax costs, also – depending on the accounting policy adopted – accounting costs. 

Purchase price  

Depending on the manner in which a fixed asset classified as a fixed asset/investment property was obtained (e.g. purchase, contribution in kind, reclassification from another type of asset, production in whole or in part in-house), its initial value is its purchase price and/or production cost. The purchase price and manufacturing cost comprise all the costs remaining in connection with its acquisition, including construction, incurred up to the date of taking it into use.  

Capitalisation of expenditure 

Taking the above into account, the accounting records maintained by the entity should allow for the recording of individual purchases/expenditures making up the final initial value of the fixed asset, taking into account the differences between balance sheet and tax law.  

Taking into account the specificities of real estate companies, the table below shows the categories of expenses that occur most frequently when conducting a real estate investment project.   

Expense category	Capitalidstion up to the initial value
Land acquisition	Yes
Purchase of a finished building	Yes
Tax on civil law transactions related to the purchase	Yes
Notary fees, court fees	Yes
Purchase of architectural design	Yes
Purchase of building materials	Yes
Purchase of construction services	Yes
Construction manager’s remuneration	Yes
Obtaining the relevant administrative decisions necessary for the implementation of the project	Yes
Purchase of furniture with assembly as a fixed part of building/building walls	Yes
Costs of electricity and gas (utilities) consumed during construction work	Yes
Costs of making connections to the electricity grid and gas distribution	Yes
Cost of construction supervision services	Yes
Investment project, construction management services	Yes
Consultancy services related to the preparation of investment concepts	Yes
Legal services related to the transfer of necessary administrative decisions conditioning the implementation of the Project	Yes
Legal services related to the preparation and analysis of contracts related to the acquisition of land, services and building materials	Yes
Debt financing costs – interest, in the part related to the investment in progress	Yes*
Debt financing costs – commissions, in the part related to the investment in progress	Yes*
Exchange rate differences on transactions and on own cash accrued up to the date of acceptance of the fixed asset	Yes*
Valuation services for property intended for development	Yes/No**
Consultancy costs, legal and tax due diligence, technical	Yes/No**
Management costs (office rental, administrative salaries, other)	No
Organisation of a conference to promote the investment	No
Printing of brochures, leaflets, promotional and advertising material	No
Production of advertising banners	No
Public relations services	No
Preparation of a mock-up of the investment	No
Preparation of a film promoting the investment	No
Maintenance of the website, including acquisition of web domain rights and obtaining servers	No
Cost of office space agents	No

(*) Within the limit on financing costs set by the tax legislation 

(**) Required analysis of the scope of services provided  

The incurrence of the above expenses will depend on how the fixed asset is obtained (e.g., the purchase of a finished building, or the manufacture of all or part of it in-house).

At the same time, in terms of tax qualification, due to the changing position of tax authorities, in some cases it is necessary to confirm the possibility of capitalization of a given expense by obtaining an individual tax interpretation.

Inventory and accounting records in property development activities

Tax records

It should be emphasised that the additional costs associated with the purchase of the main asset and its adaptation for use should be allocated to the identified assets according to a specific allocation key.

In addition, the records kept should allow:   

identification and determination of the value of buildings subject to tax on income from a fixed asset that is a building,

determination of debt financing costs included in the initial value and the corresponding value of depreciation charges,

separation of buildings subject to property tax.

Balance sheet valuation methods

For assets that have been classified under the heading “Investment property”, Polish accounting regulations provide for two methods of valuation:

• In the manner envisaged for fixed assets, i.e. the cost model, i.e. at acquisition or production cost, less depreciation and impairment losses,
• at market price or otherwise specified fair value.

The decision on the choice of valuation method is made by the entity’s manager (management) in the accounting policy adopted by the entity.

Investment property in the accounting books