Definitions
Investment Property:
It is the property (land or a building, part of a building or both) held by the owner or by the lessee under a finance Lease to earn rentals and capital appreciation or both, rather than use for
(a) Production or supply of goods or services;
(b) For administrative purposes;
(c) Sale in the ordinary course of Business;
Owner Occupied Property:
Property held by the owner or by the lessee under finance lease for use:
a) Production or supply of goods or services;
(b) For administrative purposes;
(c) Sale in the ordinary course of Business;
COVERAGE/SCOPE
1. This standard prescribes the accounting treatment and disclosure relating to Investment Property;
2. The standard applies in Recognition, measurement ,and disclosure of investment property;
3. The standard applies for measurement in a lessee financials statement of investment property under finance lessee and also measurement in the lessor’s Financials statements of investment property leased out under an operating lease.
This Standard does not apply to
1. Any matters covered in Ind As -116 (leases);
2. Biological Assets related to agricultural activity (Ind As -41);
3. Mineral rights and minerals reserve such as oil, natural gas, and similar non-regenerative resources.
Examples:
INCLUDES
- Land held for long term capital appreciation rather than use for short term sale in the ordinary course of business;
- Land held for a currently undetermined future use. (If an entity has not determined that property will use as owner-occupied or for short term sale in the ordinary course of business, the land is regarded as held for capital appreciation.);
- A Building owned by the entity (or held under a finance lease) and leased out under one or more operating leases;
- A Building that is vacant but is held to be leased out under one or more operating leases;
- Property that is being constructed or developed for future use as Investment Property;
NOT INCLUDES
- Property intended for sale in the ordinary course of business or in the process of construction or development for such sale (Ind AS-2, Inventories), for example,property acquired exclusively with a view to subsequent disposal in the near future or for development and resale;
- Property that is leased to another under a finance lease;
- Owner-occupied property (Ind As-16), including
(a) Property occupied by employees (whether or not employees pay rent at market rates;
(b)Property held for future use as owner-occupied property;
(c) Property held for future development and subsequent use as owner-occupied property.
CONFUSING CASES
PARTLY FOR BUSINESS AND REST FOR EARNING RENTALS/CAPITAL APPRECIATION
Some properties compromises a portion that is held to earn rentals or for capital appreciation and another portion is used for production or supply of goods or services or administrative purpose.
If the portions could be sold separately (leased out separately under finance lease), an entity accounts for the portions separately,
If the portions could not be sold separately, the property is investment property if an insignificant portion is used in the purpose of production or supply of goods or services or for administrative purposes,
ANCILLARY SERVICES
If services provided are not significant: An entity treats such a property as investment property if the services are insignificant to the arrangement as a whole for examples; when the owner of an office building provides security and maintenance services to the lessees who occupy the building
If services provided are significant: 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 an investment property
TREATMENT OF INVESTMENT PROPERTY IN CONSOLIDATED STATEMENTS
If one subsidiary that is leased to, and occupied by, its parent or another subsidiary
(A) In consolidated financial statements: 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.
(B) In standalone financial Statements: It treats the property as investment property in its individual financial statements.
Recognition
Investment property shall be recognized as an asset when and when only:
(a) It is probable that future economic benefits that are associated with investment property will probably flow to the entity; and
(b) The Cost of Investments can be measured reliably.
Measurement at Recognition
1. DEFERRED PAYMENT: If payment for an investment property is deferred, then discount these payments at incremental borrowing cost (market rate).
The Difference between gross payments and present value discounted will be considered as interest in P&L.
2. FULL PAYMENT AT ACQUISITION
The Cost of purchased investment property includes:
(a) Purchase Price
(b) Directly attributable expenditure (professional fees for legal services, property transfer taxes and other transaction costs.)
Not Includes
(a) Start-up costs (unless they are necessary to bring the property to the condition necessary for it to be capable of operating in the manner intended by management),
(b) Operating losses incurred before the investment property achieves the planned level of occupancy, or
(c) Promotional Expenses, abnormal amounts of wasted material, labour or other resources.
3 EXCHANGE OF ASSETS
These type of transaction not occurred in practical life, but to cover Ind As -40
(If fair value of both given up assets and taken up assets is known)
The Investment property acquired recorded at fair value.
The Difference between the Cost of fair value of given assets and the cost of fair value of taken assets is deemed as cash settlement.
The Difference between the cost of fair value of given assets and written down value of assets is transferred to P&L.
(If fair value of taken up assets is known, but the fair value of given up assets is not known)
In this case,
There is no cash settlement between the Cost of fair value of given assets and the cost of fair value of taken assets.
The Difference between the cost of fair value of taken up assets and written down value of assets is transferred to P&L.
(If fair value of taken up assets is not known, but fair value of given up assets is known)
In this case,
There is no cash settlement between the Cost of fair value of given assets andthe cost of fair value of taken assets.
The Difference between the cost of fair value of given assets and written down value of assets is transferred to P&L.
The fair value of given up assets is deemed to bethe Cost of New Property.
(If none of the fair value of taken up assets and given up assets is available)
In this case,
There is no cash settlement.
This transaction will not affect P&L.
Written down Value or carrying value of assets given is deemed to be the Cost of New Property.
4. Lessee under finance lease
A Lessor in case of a finance lease, Measure value at lower of the fair value of the property and the present value of the minimum lease payments as per Ind As -116
Measurement after recognition
The entity shall after initial recognition, subsequently measure at cost.
Is Fair Value Allowed?
As the Provision of the standards, all entities to measure the fair value of investment property, for the purpose of disclosure As per Ind As 113 (notes to Accounts) even though they are required to follow the cost model.
Transfers
Transfer is done when there is a change in the use of property;
The below cases:
Transfer from investment property to owner-occupied property.
Transfer from investment property to inventory.
Transfer from owner-occupied property to investment property.
Transfer from inventory to investment property.
AFTER SUCH TRANSFER-
Carrying Value will not change.
Disclosures will made as per the New Ind As under which property is covered (Ind AS-2, Ind AS-16, and INDAS-40)
Disposals
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.
The difference between net selling price and carrying amount should be considered in P&L on Disposal.
Ind AS 116 applies to a disposal effected by entering into a finance lease and to a sale and leaseback
Disclosure
(a) Accounting policy for measurement of investment.
(b) Fair value measurement, If there has been no such valuation, 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.
(c) The amounts recognised in profit or loss for:
(i) Rental income from investment property;
(ii) Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period; and
(iii) Direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.
(d) The existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal
(e) Contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements
In addition
(a) The depreciation methods used;
(b)The useful life of depreciation rates used;
(c) Transfers to and from inventories and owner-occupied property.
(c) Reconciliation
Comparison with IAS 40, Investment Property
IAS 40 permits both cost model and fair value model, but Ind as permits only cost model
