Standard 40: Investment Property

Standard 40: Investment Property · Complied AI

(e)

property that is leased to another entity under a finance lease.

10 Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portions could not be sold separately, the property is investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

11 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.

12 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.

13 It may be difficult to determine whether ancillary services are so significant that a property does not qualify as investment property. For example, the owner of a hotel sometimes transfers some responsibilities to third parties under a management contract. The terms of such contracts vary widely. At one end of the spectrum, the owner’s position may, in substance, be that of a passive investor. At the other end of the spectrum, the owner may simply have outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations of the hotel.

14 Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so that it can exercise that judgement consistently in accordance with the definition of investment property and with the related guidance in paragraphs 7–13. Paragraph 75(c) requires an entity to disclose these criteria when classification is difficult.

14A Judgement is also needed to determine whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of Ind AS 103, Business Combinations . Reference should be made to Ind AS 103 to determine whether it is a business combination. The discussion in paragraphs 7-14 of this Standard relates to whether or not property is owner-occupied property or investment property and not to determining whether or not the acquisition of property is a business combination as defined in Ind AS 103. Determining whether a specific transaction meets the definition of a business combination as defined in Ind AS 103 and includes an investment property as defined in this Standard requires the separate application of both Standards.

15 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 in paragraph 5. Therefore, the lessor treats the property as investment property in its individual financial statements.

Recognition

16 8 An owned investment property shall be recognised as an asset when, and only when:

(c)

the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entity’s operations affected by the transaction shall reflect post-tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations.

29 The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If the entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident.

29A 13 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.

Measurement after recognition

Accounting policy

30 An entity shall adopt as its accounting policy the cost model prescribed in paragraph 56 to all of its investment property.

31 [Refer Appendix 1]

32 This Standard requires all entities 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 who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued.

32A-32C [Refer Appendix 1]

Fair value measurement

33-35 [Refer Appendix 1]

36-39 [Refer Appendix 1]

40 When measuring the fair value of investment property in accordance with Ind AS 113, an entity shall ensure that the fair value reflects, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions.

40A 14 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.

41 [Refer Appendix 1]

42-47 [Refer Appendix 1]

48 In exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the variability in the range of reasonable fair value measurements will be so great, and the probabilities of the various outcomes so difficult to assess, that the usefulness of a single measure of fair value is negated. This may indicate that the fair value of the property will not be reliably measurable on a continuing basis (see paragraph 53).

49-52 [Refer Appendix 1]

Inability to measure fair value reliably

53 There is a rebuttable presumption that an entity can reliably measure the fair value of an investment property on a continuing basis. However, in exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the fair value of the investment property is not reliably measurable on a continuing basis. This arises when, and only when, the market for comparable properties is inactive (eg there are few recent transactions, price quotations are not current or observed transaction prices indicate that the seller was forced to sell) and alternative reliable measurements of fair value (for example, based on discounted cash flow projections) are not available. If an entity determines that the fair value of an investment property under construction is not reliably measurable but expects the fair value of the property to be reliably measurable when construction is complete, it shall measure the fair value of that investment property either when its fair value becomes reliably measurable or construction is completed (whichever is earlier). If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably measurable on a continuing basis, the entity shall make the disclosures required by paragraphs 79(e) (i), (ii) and (iii) .

53A Once an entity becomes able to measure reliably the fair value of an investment property under construction for which the fair value was not previously measured, it shall measure the fair value of that property. Once construction of that property is complete, it is presumed that fair value can be measured reliably. If this is not the case, in accordance with paragraph 53, the entity shall make the disclosures required by paragraphs 79(e)(i), (ii) and (iii).

53B The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition. An entity that has measured the fair value of an item of investment property under construction may not conclude that the fair value of the completed investment property cannot be measured reliably.

54 In the exceptional cases when an entity is compelled, for the reason given in paragraph 53, to make the disclosures required by paragraphs 79(e)(i), (ii) and (iii), it shall determine the fair value of all its other investment property, including investment property under construction. In these cases, although an entity may make the disclosures required by paragraphs 79(e)(i), (ii) and (iii) for one investment property, the entity shall continue to determine the fair value of each of the remaining properties for disclosure required by paragraph 79(e).

55 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) even if comparable market transactions become less frequent or market prices become less readily available.

Cost model

56 15 After initial recognition, an entity shall measure investment property:

(e)

58 17 When an entity decides to dispose of an investment property without development, it continues to treat the property as an investment property until it is derecognised (eliminated from the balance sheet) and does 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 is not reclassified as owner-occupied property during the redevelopment.

59 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.

60-65 [Refer Appendix 1]

Disposals

66 An investment property shall 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.

67 18 The disposal of an investment property may be achieved by sale or by entering into a finance lease. The date of disposal for investment property that is sold is the date the recipient obtains control of the investment property in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115. Ind AS 116 applies to a disposal effected by entering into a finance lease and to a sale and leaseback.

68 If, in accordance with the recognition principle in paragraph 16, an entity recognises in the carrying amount of an asset the cost of a replacement for part of an investment property, it derecognises the carrying amount of the replaced part. A replaced part may not be a part that was depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.

69 19 Gains or losses arising from the retirement or disposal of investment property shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset and shall 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.

70 20 The amount of consideration to be included in the gain or loss arising from the derecognition of an investment property is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115.

71 An entity applies Ind AS 37 or other Standards, as appropriate, to any liabilities that it retains after disposal of an investment property.

72 Compensation from third parties for investment property that was impaired, lost or given up shall be recognised in profit or loss when the compensation becomes receivable.

73 Impairments or losses of investment property, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:

(b)

disclose the amounts reclassified to, or from, investment property in accordance with paragraph 84C. The entity shall disclose those amounts reclassified as part of the reconciliation of the carrying amount of investment property at the beginning and end of the period as required by paragraph 79.

Effective date

85 *

85A *

85B *

85C *

85D *

85E As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers , paragraphs 3(b), 9, 67 and 70 are amended. An entity shall apply those amendments when it applies Ind AS 115.

85F 24 Ind AS 116, amended the scope of Ind AS 40 by defining investment property to include both owned investment property and property held by a lessee as a right-of-use asset. Ind AS 116 amended paragraphs 5, 7, 8, 9, 16, 20, 56, 67, 69 and 74, added paragraphs 19A, 29A, 40A and 84B and its related heading and deleted paragraphs 3, 25 and 26. An entity shall apply those amendments when it applies Ind AS 116.

85G Transfers of Investment Property (Amendments to Ind AS 40), amended paragraphs 57–58 and added paragraphs 84C–84E. An entity shall apply those amendments for annual periods beginning on or after 1 s t April, 2018.

Appendix 1

Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 40 and the corresponding International Accounting Standard (IAS) 40, Investment Property, issued by the International Accounting Standards Board.

Comparison with IAS 40, Investment Property

1 25 IAS 40 permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40 permits only the cost model. The following paragraphs of IAS 40 which deal with fair value model have been deleted in Ind AS 40. In order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40:

(i)

Paragraph 31

(ii)

Paragraphs 32A-32C

(iii)

Paragraphs 33 and 35

(iv)

Paragraph 41

(v)

Paragraph 50

(vi)

Paragraph 52

(vii)

Paragraphs 60-65

(viii)

Paragraph 75(f)(iv)

(ix)

Paragraphs 76-78

(x)

Paragraphs 84E (i) - (ii)

2 The transitional provisions given in IAS 40 have not been included in Ind AS 40 since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards .

3 IAS 40 requires disclosure of fair values of investment property when cost model is used. Since this requirement is retained in Ind AS 40, paragraphs 53, 53A, 53B, 54 and 55 and certain other paragraphs of IAS 40 have been modified. The modifications include deletion of reference to use of cost model when fair value measurement is unreliable.

4 Omitted 26

5 27 As a result of prohibition of use of fair value model in Ind AS 40, there are some modifications in the wording of paragraphs 30 and 32 (Accounting policy), heading above paragraph 33 (‘Fair value measurement’ instead of ‘Fair value model’), paragraph 40A, paragraph 56, paragraph 59 (deletion of portion relating to fair value model), paragraph 68 (deletion of a portion dealing with fair value model), heading above paragraph 74 (deletion of the heading ‘Fair value model and cost model’), paragraph 75(a) (disclosure of accounting policy), heading above paragraph 76 (deletion of the heading ‘Fair value model’), heading above paragraph 79 (deletion of the heading ‘Cost model’) and paragraph 79 (deletion of the words ‘ that applies the cost model in paragraph 56’) as compared to the wording used in IAS 40.

6 Different terminology is used in this Standard eg, the term ‘ balance sheet’ is used instead of ‘Statement of financial position’.

7 28 The following paragraphs appear as ‘Deleted’ in IAS 40. In order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40:

(i)

Paragraph 3

(ii)

Paragraph 6

(iii)

Paragraph 9(b)

(iv)

Paragraph 9(d)

(v)

Paragraph 22

(vi)

Paragraph 34

(vii)

Paragraphs 36-39

(viii)

Paragraphs 42-47

(ix)

Paragraph 49

(x)

Paragraph 51

(xi)

Paragraph 57(e)

(xii)

Paragraph 75(b) and (d)”.

8 29 Paragraphs 80 to 84A of IAS 40 which deals with the transitional provisions have not been included in Ind AS 40 as all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. Paragraphs 85 to 85D in IAS 40 have not been included in Ind AS 40 as these paragraphs relate to effective date which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40.

9 Omitted 30

Footnotes

Notes, amendments & references (36)

# This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and was

amended vide Notification No. G.S.R. 365(E) dated 30th March, 2016, G.S.R. 310(E)

dated 28th March, 2018, G.S.R. 273(E) dated 30th March, 2019 and G.S.R. 419(E)

dated 18th June, 2021.

1 Refer Appendix 1. Omitted vide Notification No. G.S.R. 273(E) dated 30th March, 2019

2 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

3 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

4 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019. Editorial correction notified vide Notification No. G.S.R. 419(E) dated 18 th June, 2021.

5 Substituted vide Notification No. G.S.R. 273(E) dated 30th March, 2019.

6 Refer Appendix 1. Substituted vide Notification No. G.S.R. 365(E) dated 30th March,

2016 and, thereafter, omitted vide Notification No. G.S.R. 310(E) dated 28th March, 2018.

7 Substituted vide Notification No. G.S.R. 273(E) dated 30th March, 2019.

8 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

9 Inserted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

10 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

11 vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

12 Omitted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

13 vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

14 Inserted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

15 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

16 Substituted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018.

* Refer Appendix 1

17 Substituted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018.

18 Substituted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016 and, thereafter, substituted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018 and G.S.R. 273(E) dated 30 th March, 2019.

19 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

20 Substituted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016 and, thereafter, substituted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018.

21 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

22 Headings and paragraphs 80-85G inserted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018.

23 Heading and paragraph 84B substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

24 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

25 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

26 Omitted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

27 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

28 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.

29 Inserted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018.

30 Inserted vide Notification No. G.S.R. 310(E) dated 28 th March, 2018 and, thereafter, omitted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.