Basic discussion on Ind AS on Investment Property

1. Understanding
Ind AS
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2. Ind AS 40
INVESTMENT PROPERTY

3. Overview of the Session
Objective, Scope
& Definitions
Recognition
Measurement
De-recognition
Disclosures
At
Recognition
After
Recognition
Cost Model
Fair Value
Model
Depreciation
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Transfer
Disposal
Carve Out

4. Objective, Scope &
Definitions
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5. 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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6. CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
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

7. 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)
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8. 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.
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Property
Land
Building
Land & Building
Rentals
Capital
Appreciation
Rentals & Capital
Appreciation
Held for

9. 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.
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10. CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
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

11. CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
Investment Property (Examples)
11
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

12. Recognition
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13. 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
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14. Measurement
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15. 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
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16. 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
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17. ◦ 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
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18. 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.
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19. CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
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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20. Transfers
Transfers to, or from, investment property shall be
made when, and only when, there is a change in
use.
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Investment Property
Owner Occupied
Property (PPE)
Commencement of
owner-occupation
Investment Property Inventory
Commencement of
development with a
view to sale

21. Transfers
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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

22. De-Recognition
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23. An investment property shall be de-recognized
Or
When to De-Recognize?
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On
Disposal
Withdrawn from use
No future economic
benefits are expected from
its disposal

24.  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
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25. Disclosures
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26. 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.
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27. 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)
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28. Thank You
CA Pranav Joshi
Partner
P. G. Joshi & Co., Chartered Accountants
www.pgjco.com