ind as 40 on investment property

Understanding Ind AS CA PRANAV JOSHI, PARTNER | P. G. JOSHI & CO.

Ind AS 40 INVESTMENT PROPERTY

Overview of the Session Objective, Scope

& Definitions

Recognition

Measurement

De-recognition

Disclosures

At Recognition

After Recognition

Cost Model

Fair Value Model

Depreciation

3 CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants

Transfer

Disposal

Carve Out

Objective, Scope & Definitions

CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants 4

CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants

Objective

“The objective of the standard is to prescribe the

accounting treatment for investment property and

related disclosure requirements.”

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Scope

This standard shall be applied in the recognition,

measurement and disclosure if investment property.

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Owner

Lessee under Finance Lease

Lessor under Operating Lease

Holds Investment

Property

Apply Ind AS 40

Essentially the party who will charge the depreciation

Definitions 1. Carrying amount is the amount at which an asset is

recognised in the balance sheet.

2. Cost is the amount of cash or cash equivalents paid or

the fair value of other consideration given to acquire an

asset at the time of its acquisition or construction.

3. Fair value is the amount for which an asset could be

exchanged between knowledgeable, willing parties in an

arm’s length transaction on the date of reporting. (Ind AS

113)


Definitions

4. Investment Property

rather than for:

Use in the production or supply of goods or services or for

administrative purposes; or

Sale in the ordinary course of business.


Property

Land

Building

Land & Building

Rentals Capital

Appreciation Rentals & Capital

Appreciation

Held for

Definitions 5. Owner Occupied Property is property held (by the

owner or by the lessee under a finance lease) for use in

the production or supply of goods or services or for

administrative purposes. (to be accounted for as per Ind

AS 16)

6. Partly Investment Property:

If a portion of a building is held for earning rent (say 1

floor out of 4), the building can be proportionately

classified as Investment Property and Owner Occupied

Property.



Investment Property (Examples)

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Sr. No. Property Investment Property?

Applicable Ind AS

1 Owned by a company and leased out under an operating lease

Yes Ind AS 40

Investment Property

2 Held under a finance lease and leased out under an operating lease

Yes Ind AS 40

Investment Property

3 Held under a finance lease and leased out under an finance lease

No Ind AS 17

Leases

4 Property acquired with a view for development and resale

No Ind AS 2

Inventory


Investment Property (Examples)

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Sr. No. Property Investment Property?

Applicable Ind AS

5 Property developed on behalf of third party

No Ind AS 11

Construction Contracts

6 Property partly owner occupied and partly leased out under operating lease

Depends Ind AS 40/ Ind AS 16

7 Land currently held for an undetermined use

Yes Ind AS 40

Investment Property

8 Investment Property held for sale

No Ind AS 105

Non-Current Assets Held for Sale and Discontinued

Operations

Recognition


Investment property shall be recognised as an asset

when, and only when:

◦ It is probable that the future economic benefits that are

associated with the investment property will flow to the

entity; and

◦ The cost of the investment property can be measured

reliably.

Recognition


Measurement


An investment property shall be measured initially at its

cost. Transaction costs shall be included in the initial

measurement.

Cost includes

◦ Purchase Price

◦ Any directly attributable expenditure – Legal services, taxes, other

transaction cost

Does not include

◦ Initial estimate of dismantling cost

◦ Cost of bringing the asset to its intended place of use

Initial Measurement


Leased Asset

The initial cost of a property interest held under a lease and

classified as an investment property shall be as prescribed

for a finance lease i.e. the asset shall be recognised at

◦ The fair value of the property; OR

◦ The present value of the minimum lease payments.

Whichever is Lower.

An equivalent amount shall be recognised as a liability

towards lease rentals

Initial Measurement


◦ An entity can choose as its accounting policy either the fair

value model or the cost model and shall apply that policy to all

of its investment property.

◦ After initial recognition, an entity that chooses the fair value

model shall measure all of its investment property at fair value.

Except for when the fair value of the investment property is

not reliably determinable on a continuing basis. Then, an entity

shall measure that investment property using the cost model

in IAS 16. The residual value shall be assumed to be zero. The

entity shall apply IAS 16 until disposal of the asset.

Subsequent Measurement


Carve Out: Operating Lease – Investment Property in books of lessee

IAS 40 permits treatment of property interest held

in an operating lease as investment property, if the

definition of investment property is otherwise met

and fair vale model is applied.

Since Ind AS 40 prohibits use of fair value model,

this treatment is prohibited in Ind AS 40.



Subsequent Measurement

An entity shall adopt Cost Model as its accounting

policy and apply it to all of its investment property.

However, the standard requires all entities to

measure the fair value of Investment Property, for

the purpose of disclosure.

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Transfers

Transfers to, or from, investment property shall be

made when, and only when, there is a change in

use.


Investment Property Owner Occupied

Property (PPE) Commencement of owner-occupation

Investment Property Inventory Commencement of development with a

view to sale

Transfers


Inventories Investment Property Commencement of an operating lease to another party

Owner Occupied Property

Investment Property End of owner-

occupation

Property under Construction

Investment Property End of construction

or development

De-Recognition


An investment property shall be de-recognized

Or

When to De-Recognize?


On Disposal

Withdrawn from use

No future economic benefits are expected from its disposal

Gains or losses arising from the retirement or

disposal of investment property shall be

recognised in profit or loss in the period of the

retirement or disposal.

Other Aspects


Disclosures


Disclosures

Disclosures included but are not limited to:

◦ its accounting policy for measurement of investment

property.

◦ when classification is difficult, the criteria it uses to

distinguish investment property from owner-occupied

property and from property held for sale in the ordinary

course of business.

◦ Fair Value of Investment Property held, including the

basis of estimation of the fair value.


Disclosures

An Entity shall disclose:

◦ the amounts recognised in profit or loss for:

◦ Rental income from investment property;

◦ Direct operating expenses arising from investment property that

generated rental income during the period; and

◦ Direct operating expenses arising from investment property that

did not generate rental income during the period.

◦ Transfers (Reclassification)


Thank You CA Pranav Joshi

Partner

P. G. Joshi & Co. , Chartered Accountants

www.pgjco.com

ind as 40 on investment property

Economy & Finance