IND AS 40 - Investment Property Flashcards
What is the definition of Investment property as per IND AS 40? Explain the important components of the definition?
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.
Property mentioned in (a) above would be covered under Ind AS 16 ‘Property, Plant and Equipment’ and property specified in (b) above would be dealt with under Ind AS 2 ‘Inventories’.
What is the nature and the related cash flows relating to an Investment Property as per the provisions of IND AS 40?
What are some basic examples as to what can be remotely be called as an Investment Property as per IND AS 40?
What are certain examples of assets which are not to be considered as Investment Property and therefore are out of the scope of this standard?
What is the accounting that need to be done when Property held for more than one purpose?
In circumstances when property is held partly for capital appreciation and/or rentals, and partly for production or supply of goods or services or for administrative purposes, the two parts are accounted for separately if they could be sold, or leased out separately under a finance lease, separately. If they could not be sold (or leased out under a finance lease) separately, the property is accounted for as an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative
purposes.
What is the treatment of Ancillary services in relation to a property to decide whether it is owner occupied or Rented out under IND AS 40?
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 - Example of this would just the owner be giving a flat on rent to the tenant and asking the tenant to figure things out on his own.
In other cases, the services provided are significant. For example, if an entity owns and manages a hotel, services provided to guests are significant to the arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied property, rather than investment property.
How the investment property has to be measured after Initial recognition? what is the accounting policy that will be followed and how that is different from the IAS?
- An entity shall adopt as its accounting policy the cost model to all of its investment property.
- Entities are required to measure the fair value of investment property, for the purpose of disclosure even though they are required to follow the cost model. An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer.
- Depreciation will also be charged on IP based on the useful life ( Same as PPE).
What is the hierarchy of measurement that needs to be followed as per the provisions of IND AS 40 in summary?
What has to be disclosure in relation to the fair value when there is an inability to measure the fair value reliably?
Once construction of that property is complete, it is presumed that fair value can be measured reliably.
The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition
In the exceptional cases when an entity is compelled, for the reason given above to make the disclosures, it should determine the fair value of all its other investment property
If an entity has previously measured the fair value of an investment property, it shall continue to measure the fair value of that property until disposal (or until the property becomes owner-occupied property or the entity begins to develop the property for subsequent sale in the ordinary course of business)
What is the treatment when purchasing an IA, the company had to obtain membership of an association related to the Investment property and has to pay a One time joining fee for the same. Is that has to be included in the carrying amount of IA or has to be expensed off to PL? what if the main property itself is used for administrative purposes?
Therefore, the investment property should be measured at cost of the commercial office space + one-time joining fee - Writing off the same to PL would be deemed inappropriate.
Use as administrative office - If the property is used as an administrative centre, it is not an investment property, but rather an ‘owner occupied property’. Hence, Ind AS 16 will be applicable.
How the disclosure of the Investment property should look like in the balance sheet of a company?
How the disclosure of the Investment property should look like in the Profit and loss of a company?
How should the disclosure note on the Investment Properties acquired by the entity should be shown in the financial statements of an entity?
Question 8
What is the treatment when the property leased to other group members – treatment of same asset differently in the individual financial statements and the consolidated financial statements?
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 financial statements, because the property is owner-occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is investment property if it meets the definition of Investment Property. Therefore, the lessor treats the property as investment property in its individual financial statements.
How should transfer or reclassification of category of asset be treated as per the provisions of IND AS 40?
An entity shall transfer a property to, or from, investment property when, and 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.
Question 5
What are some examples of evidence of change in use of property from IP to PPE or vice versa?
When before reclassification, if the same has been valued using revaluation model, using Revaluation surplus etc, when transitioning as Investment property, revaluation surplus already existing(if any) in case of a PPE should be eliminated against the carrying value of the asset.
What are the scenarios in which the Investment property must be derecognized?
