Ind AS 40 prescribe accounting treatment for investment properties & related disclosure.
(i) Investment property
Investment property is property (Land, building or both) held (by owner or by lessee under finance lease) to earn rental or for capital appreciation or both and not held for use in the production or supply of goods sold in ordinary course of business.
(ii) Owner occupied property
Owner occupied property is a property held by the owner or by the lessee under finance lease for use in the production or supply of goods or services or for administrative purposes or sold in the ordinary course of business.
3. Example of Investment property
- Land held for long term capital appreciation
- Land held for undetermined future use
- Building leased out under operating lease.
- Vacant building held to be leased out under operating lease.
4. Example of what is not investment property as per Ind AS 40
- Property covered by Ind AS 16
- Property covered by Ind AS 2
- Property leased to another entity under finance lease.[Ind AS17]
5. Special cases on Ind AS 40
(i) Partial owners occupied property
If it can be sold or leased then, it is considered as investment property.
If it can not be sold then also it will be considered as investment property if its owner’s occupied property is insignificant.
(ii) Provisions for ancillary services to occupants
- If ancillary services are insignificant then it is investment property. e.g. security services in hotels; security services provided are the ancillary service are insignificant.
- If ancillary services are significant then it’s owner occupied property e.g. hotel room
(iii) Inter company rentals
e.g. subsidiary & holding company
- Investment property: consider a stand -alone financial statement.
- Owners occupied property: consider in consolidated financial statement.
6. Recognition criteria as per Ind AS 40
- It is probable that the future economic benefits that are associated with the investment property will flow to the entity.
- The cost can be measured reliably.
7. Initial measurement
Initial measurement means what value should you measure in case of direct purchase through cash or exchange with other assets.
At fair value
Add: Directly attributable expenses
1. The transaction lacks commercial substance
Add: Tax & duties (which no refund or credit shall be claimed)
2. Fair value of neither of the assets can be reliably estimated
Less: Trade discount & Rebate
8. Subsequent measurement
Subsequent measurement should be done only on cost model.
Also read: Rebate Under Section 87A: Up To ₹12,500
Only when there is change in use
- Commencement of owners occupation
- Commencement of development with view to sell (transfer will be that carrying amount)
- Permanently withdrawn from use and no future economic benefit is expected from disposal.
- Gain/loss recognized in Profit & Loss A/c (except Ind AS 17 required otherwise)