Ind AS 40 Investment Property

Note :This article covers a few important points related to Ind AS 40. Refer to this PDF to read the full details of this accounting standard :

Ind AS 40 is summarized in this article to give the brief idea on the investment property.

1.) The objective of Ind AS 40 is to establish accounting treatment of investment property and related disclosures.

2.) Investment property is held to earn rentals or capital appreciation or both. Therefore, an investment property generates cash independently of the other assets held by an entity.

3.) 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 and services or for administrative purposes. If these portions could be sold separately, an entity accounts for portions separately. Otherwise, the property is investment property only if an insignificant portion is held for production of goods or services.

4.) It may be difficult to determine whether ancillary services provided by the owner to the occupants of the property are so significant for the property to be qualified as investment property. The judgement may be made on a case-to-case basis.

5.) 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 statements because the property is owner-occupied from the perspective of the group.

6.) Recognition: Investment property shall be recognized as an asset when, and only when:

a.) It is probable that the future economic benefits that are associated with the investment property will flow to the entity.

b.) The cost of the investment property can be measured reliably.

7.) An investment property shall be measured initially at its cost. The cost of purchased investment property comprises its purchase price and any directly attributable expenditure. The cost of investment property does not increase by start-up costs, operating losses, abnormal amount of wasted material, labour or other resources.

8.) An entity shall disclose

a.) Its accounting treatment

b.) 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.

c.) The extent to which fair value of investment property is based on a valuation by an independent valuer. If there is no such valuation, that fact shall be disclosed.

d.) The amounts recognized in profit and loss for rental income from investment property and direct operating expenses.

e.) The existence and amounts of remittance on the realisability of investment property.

8.) As per para 79, in addition to disclosure mentioned above the entity shall disclose-

a.) The depreciation method used;

b.) The useful lives or the depreciation rates used;

c.) The gross carrying amount and accumulated depreciation at the beginning and end of the period.

d.) The reconciliation of the carrying amount

e.) The fair value of investment property

f.) a description of the investment property

g.) an explanation of why fair value cannot be measured reliably; and

h.) if possible, the range of estimates within which f air value is highly likely to lie.

9.) Appendix 1 is given at the last of Ind AS 40 which is not a part of this Indian Accounting Standard. The purpose of Appendix is to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 40 and corresponding International Accounting Standard (IAS) 40, Investment property issued by International Accounting Standard Board.

The above article is written by CA Chanchal Jain in full-time practice and could be reached at [email protected] or [email protected].

Disclaimer: The above article is meant for informational purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. While due care has been taken during the compilation of this article to ensure that the information is accurate to the best of our knowledge and belief, the contents of such article do not substitute for professional advice that may be required. The individual expressly disclaims all and any liability to any person who has read this document or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this article.

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