IND AS 40 INVESTMENT PROPERTY

IND AS CERTIFICATION COURSE – DAY 3

Faculty : CA Diwas Gupta

Ind AS Implementation Committee
The Institute of Chartered Accountants of India
New Delhi, India
Disclaimer: The views expressed herein are solely those of the Faculty/Presenter and not that of the ICAI or any of
its committees. The ICAI or the Faculty or Preparer of this material do not accept any responsibility for omission
or inadequacy of the contents in this document and also for loss caused to any person who acts or refrains from
acting in reliance on the contents of this document irrespective of the cause of / reason for the loss.
 IND AS 40 – INVESTMENT PROPERTY DEFINITION
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Investment property is
property (land or a building—or part of a building—or both)
held (by the owner or by the lessee under a finance lease)
to earn rentals or for capital appreciation or both,

rather than for:

(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business.

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.
(Ind AS 40.05)

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IND AS 40 – IMPORTANT DEFINITION
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• Rent
• Capital appreciation
• Both
• Future use is not yet determined
Investment property • Building “owned” or “held under finance lease” and further leased in operating
lease.
• Vacant but held to be leased for operating lease
• Property currently constructed or developed for future use as investment
property (Ind AS 40.08)

• Held and sold in ordinary course of business (Ind AS 2)

• Meets definition of classified as held for sale (Ind AS 105)
Owner occupied property • Property leased under finance lease to another party.
• Property used by employees (whether rent is paid or not) (Ind AS 40.09)

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IND AS 40 – IMPORTANT DEFINITION
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Lessor

Finance Lease Operating lease

Lessee
Not an investment property Investment property

Finance Lease Operating lease

Investment property Not an investment propert

provided its use.

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 IND AS 40 MULTIPURPOSE PROPERTIES
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Partly Partly
Overall
investment owner
property
purpose occupied
An entity might own a four-storey building, two floors are let
out for rentals and other two floors are self occupied for
office staff.

If the portions of property is In this case, if the entity could sell floors separately or lease
separable, respective portion them out separately on finance lease, them it should treat
as per usage
respective floors as investment property and owner
occupied property.

Owner Occupied is
insignificant, then entire
property can be investment
property
Ind AS 40.10
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 IND AS 40 – MULTIPURPOSE PROPERTY
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Case study xx
Entiry A owns a hotel resort, which includes a casino housed in a separate building.

The casino facility can be separately sold, or leased out under a finance lease and it is intended to be given to independent
casino operator.

Solution
Management should classify hotel as property, plant and equipment and casino as investment property.

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 IND AS 40 – ANCILLARY SERVICES
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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.
Ind AS 40.11

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 IND AS 40 – ANCILLARY SERVICES
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The following cases, indicates how different arrangement have an impact on classification of a property
specifically in hotel industry.

Owner is a passive investor, wherein all the significant activities are

managed by third party.

• Investment property

Owner has outsourced certain functions but retained significant

exposure to variations in cash flows from operation of the hotel.

• Owner occupied

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 IND AS 40 – GROUP CONSIDERATIONS
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One group entity might lease property to another entity in the same group.

(40.15)
Standalone
Financials –
Investment
property

Consolidated
financials –
Owner
Property occupied by associate or joint venture is accounted for occupied
as investment property in consolidated financials as associate and
joint ventures are not regarded as group.
Ind AS 110. Appendix A

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 IND AS 40 – GROUP CONSIDERATIONS
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Case Study
Entity A owns a hotel and Entity B (subsidiary of entity A) manages the chains of hotels. The hotel owned by entity A is
leased to entity B for Rs 1 crores p.a. and any profit or loss of hotel rest with entity B.

Evaluate the hotels classification in consolidated and separate financial statements ?

Solution
The hotel is classified as property, plant and equipment in consolidated financials and investment property in separate
financials statements.

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 IND AS 40 – RECOGNITION
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Investment property shall be recognised 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; and

(b) the cost of the investment property can be measured reliably

Ind AS 40.16

Costs of the day-to-day servicing = Charged to P&L (Repairs and Maintenance)

Ind AS 40.18

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 IND AS 40 – RECOGNITION AMOUNT
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Investment property shall be recognized at cost initially in case the asset is owned.

Purchase price (Excludes deferred credit payment terms)

Transaction cost

Professional fees for legal services

Property transfer taxes

Excludes
Startup cost
Operating losses
Abnormal amounts for self constructed property

Investment property shall be recognized as per Ind AS 116 in case the asset is taken on lease.
Refer Ind AS 16 for the principles to be followed regarding exchange of assets
Ind AS 40.20 to 26 12
 IND AS 40 – AFTER RECOGNITION
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The entity should adopt cost model subsequent to recognition.

Ind AS 40.30

Measurement of fair value = Only for disclosure purposes.

The entity is encouraged but not required mandatory valuation from an independent valuer.
Ind AS 40.32

Cost model implies carrying value to be arrived as

Cost
(-) Accumulated Depreciation
(-) Accumulated Impairment

Impairment is accounted when carrying amount is higher than recoverable amount.

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 IND AS 40 – FAIR VALUE - CONSIDERATIONS
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Fair value Rebuttable presumption that fair value can be measured reliably. When an entity cannot measure
fair value reliably on continuing
basis, following disclosures are
given
Exceptional cases where fair value cannot be measured
Market for comparable is inactive (Few recent transactions or
price quotations) Description of investment property
Alternative reliable measurements of fair value are not available.
(Discounted cash flow model).

Explanation why fair value cannot

be measured reliably
Property under construction
Entity concludes that fair value cannot be measured reliably till
the construction is carried.
Fair value to be measured when construction is complete or fair If possible range of estimates
value can be reliably measured (whichever is earlier) – Relaxation
given.

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IND AS 40 – TRANSFERS
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From To Condition Value

Investment property Property, Plant and  Commencement of owner occupation or, Carrying
(Ind AS 40) Equipment (Ind AS 16)  Commencement of development with a view amount
to owner occupation
Investment property Inventory (Ind AS 2)  Commencement of development with a view Carrying
(Ind AS 40) to sale. amount
(If entity decides to sell the investment property
without any development, it continues to treat
the same as IP and not as inventory)
Property, Plant and Investment property When owner occupation ceases Carrying
Equipment (Ind AS 16) (Ind AS 40) amount

Inventory (Ind AS 2) Investment property Commencement of operating lease granted to Carrying

(Ind AS 40) third party on property held in inventory amount

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IND AS 40 – DERECOGNITION
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Derecognition

Sale

Permanently withdrawn from

Disposal use and no future economic
benefits from its disposal

Entering into finance lease

Date of disposal = Recipient obtains control Gain/loss to profit and loss (Net proceeds less carrying amount)
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 Ind AS Course
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Faculty Contact Details: CA Diwas Gupta

ICAI Contact for more details : [email protected]
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