Indian Accounting Standard (Ind AS 40), Investment Property
The objective of Ind AS 40 is to prescribe the accounting treatment for investment property and related disclosure requirements.
Investment property is property (land or a building, or part of a building, or both) held (by the owner or by the lessee as a right of use asset) 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 as a right-of-use asset) for use in the production or supply of goods or services or for administrative purposes.
An owned investment property should be recognised as an asset 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.
An owned investment property should be measured initially at its cost. Transaction costs should be included in the initial measurement.
An investment property held by a lessee as a right-of-use asset shall be measured initially at its cost in accordance with Ind AS 116.
When a lessee measures fair value of an investment property that is held as a right-of-use asset, it shall measure the right-of-asset, and not the underlying property at fair value.
An entity should adopt as its accounting policy the cost model to all of its investment property. After initial recognition, an entity should measure investment property:
(a) in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, if it meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale);
(b) in accordance with Ind AS 116, Leases if it is held by a lessee as a right of use asset and is not held for sale in accordance with Ind AS 105; and
(c) in accordance with the requirements in Ind AS 16 for cost model in all other cases.
The Standard requires all entities to measure the fair value of investment property, for the purpose of disclosure.
An entity should transfer a property to, or from, investment property only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use.
Transfers between investment property, owner-occupied property and inventories do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
An investment property should be derecognised (eliminated from the balance sheet) on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.
When an entity decides to dispose of an investment property without development, it should continue to treat the property as an investment property until it is derecognised (eliminated from the balance sheet) and should not reclassify it as inventory. Similarly, if an entity begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property and should not be reclassified as owner-occupied property during the redevelopment.
Gains or losses arising from the retirement or disposal of investment property should be determined as the difference between the net disposal proceeds and the carrying amount of the asset and should be recognised in profit or loss (unless Ind AS 116 requires otherwise on a sale and leaseback) in the period of the retirement or disposal.
Compensation from third parties for investment property that was impaired, lost or given up should be recognised in profit or loss when the compensation becomes receivable.
The owner of an investment property provides lessors’ disclosures about leases into which it has entered as required by Ind AS 116. A lessee that holds an investment property as a righ-of-use asset provides lessees’ disclosures as required by Ind AS 116 and lessors’ disclosures as required by Ind AS 116 for any operating leases into which it has entered.
This Standard required an entity to disclose:
(a) its accounting policy for measurement of investment property.
(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 the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall be disclosed.
(d) the amounts recognised in profit or loss for rental income from investment property and direct operating expenses arising from investment property that generated rental income during the period as well as that did not generate rental income during the period.
(e) the existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
(f) contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.
An entity shall also disclose the depreciation methods used; the useful lives or the depreciation rates used, the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period and a reconciliation of the carrying amount of investment property at the beginning and end of the period and the fair value of investment property.
In the exceptional cases, when an entity cannot measure the fair value of the investment property reliably, it shall disclose:
(i) a description of the investment property;
(ii) an explanation of why fair value cannot be measured reliably; and
(iii) if possible, the range of estimates within which fair value is highly likely to lie.