IND AS - 40 - INVESTMENT PROPERTY Revision
IND AS - 40 - INVESTMENT PROPERTY Revision
IND AS - 40 - INVESTMENT PROPERTY Revision
IND AS – 40
INVESTMENT PROPERTY
(1) Definition
(2) Recognition
(3) Initial Measurement
(4) Subsequent Expenditure
(5) Subsequent Measurement
(6) Transfer
(7) Disposal
(1) DEFINITION :
Investment property - Land or building, or part of a building, or both, held by the
owner or the lessee under a finance lease to earn rentals and/or for capital
appreciation, rather than for:
use in production or supply of goods and services or
use in administrative purposes or
sale in the ordinary course of business.
Owner-occupied property - Property held by the owner or the lessee under a finance
lease for use in production or supply of goods and services or for administrative
purposes.
A building owned by the entity (or held by the entity under a finance lease) and
leased out under one or more operating leases.
A building that is vacant but is held to be leased out under one or more
operating leases.
Property that is being constructed or developed for future use as investment
property.
Property intended for sale in the ordinary course of business or in the process
of construction or development for such sale (Ind AS - 2, Inventories), for
example, property acquired exclusively with a view to subsequent disposal in
the near future or for development and resale.
owner-occupied property (Ind AS - 16), including (among other things)property
held for future use as owner-occupied property, property held for future
development and subsequent use as owner-occupied property, property
occupied by employees (whether or not the employees pay rent at market
rates) and owner-occupied property awaiting disposal.
Property that is leased to another entity under a finance lease.
Some properties comprise a portion that is held to earn rentals or for capital
appreciation and another portion that is held for use in the production or
supply of goods or services or for administrative purposes. If these portions
could be sold separately (or leased out separately under a finance lease), an
entity accounts for the portions separately. If the portions could not be sold
separately, the property is investment property only if an insignificant portion
is held for use in the production or supply of goods or services or for
administrative purposes.
In some cases, an entity provides ancillary services to the occupants of a
property it holds. An entity treats such a property as investment property if the
services are insignificant to the arrangement as a whole. An example is when
the owner of an office building provides security and maintenance services to
the lessees who occupy the building.
In other cases, the services provided are significant. For example, if an entity
owns and manages a hotel, services provided to guests are significant to the
arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied
property, rather than investment property.
In some cases, an entity owns property that is leased to, and occupied by, its
parent or another subsidiary. The property does not qualify as investment
property in the consolidated financial statements, because the property is
owner-occupied from the perspective of the group. However, from the
perspective of the entity that owns it, the property is investment property if it
meets the definition of investment property. Therefore, the lessor treats the
property as investment property in its individual financial statements.
(2) RECOGNITION
Investment property shall be recognized as an asset when and only when:
It is probable that future economic benefits will flow to the entity; and
The cost of the investment property can be measured reliably.
Initial acquisition/construction
Asset is acquired by
Payment of Exchange of
Self construction
Cash/for credit Non-monetary assets
Amounts
Particulars
Rs.
Any other costs of construction that directly relate to the specific asset XXX
activity XXX
Yes No
Recognise at It should be measured at COST
Fair value of the asset given up; i.e. Carrying amount of asset
(1st preference) or
given up is the Cost of asset
Fair value of the asset received;
Whichever is clearly evident received.
Yes No
Capitalise Charge to P&L Statement
Costs of day-to-day servicing are primarily the costs of labour and consumables, and
may include the cost of small parts. The purpose of such expenditures is often
described as for the 'repairs and maintenance' of the property and hence these
expenses should be charged to P&L immediately in the period in which it is incurred.
(7) DISPOSAL
An investment property shall be derecognised (eliminated from the balance sheet) on
disposal or when the investment property is permanently withdrawn from use and no
future economic benefits are expected from its disposal..'
Gains or losses arising (difference between net sale proceeds and carrying amount)
from the retirement or disposal of investment property shall be recognised in the
statement of profit or loss in the period of disposal. If it is a sale and leaseback it should
be dealt as per Ind AS 116;
QUESTIONS
Q.1. Shaurya Limited owns Building A which is specifically used for the purpose of earning
rentals. The Company has not been using the building A or any of its facilities for its
own use for a long time. The company is also exploring the opportunities to sell the
building if it gets the reasonable amount in consideration.
Following information is relevant for Building A for the year ending 31st March, 2020:
Building A was purchased 5 years ago at the cost of ` 10 crore and building life is
estimated to be 20 years. The company follows straight line method for depreciation.
During the year, the company has invested in another Building B with the purpose to
hold it for capital appreciation. The property was purchased on 1st April, 2019 at the
cost of ` 2 crore. Expected life of the building is 40 years. As usual, the company
follows straight line method of depreciation.
Further, during the year 2019-2020, the company earned / incurred following direct
operating expenditure relating to Building A and Building B:
Rental income from Building A = ` 75 lakh
The company does not have any restrictions and contractual obligations against
buildings - A and B. For complying with the requirements of Ind AS, the management
sought an independent report from the specialists so as to ascertain the fair value of
buildings A and B. The independent valuer has valued the fair value of property as per
the valuation model recommended by International valuation standards committee.
Fair value has been computed by the method by streamlining present value of future
cash flows namely, discounted cash flow method.
The estimated rent per month per square feet for the period is expected to be in the
range of ` 50 - ` 60. It is further expected to grow at the rate of 10 percent per annum
for each of 3 years. The weighted discount rate used is 12% to 13%.
Assume that the fair value of properties based on discounted cash flow method is
measured at ` 10.50 crore on 31st March, 2020.
What would be the treatment of Building A and Building B in the balance sheet of
Shaurya Limited? Provide detailed disclosures and computations in line with relevant
Indian accounting standards. Treat it as if you are preparing a separate note or
schedule, of the given assets in the balance sheet. (Nov. 20)