Ind AS 40 on investment property
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Transcript of Ind AS 40 on investment property
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Understanding Ind AS CA PRANAV JOSHI, PARTNER | P. G. JOSHI & CO.
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Ind AS 40 INVESTMENT PROPERTY
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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
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Objective, Scope & Definitions
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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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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.
6
Owner
Lessee under Finance Lease
Lessor under Operating Lease
Holds Investment
Property
Apply Ind AS 40
Essentially the party who will charge the depreciation
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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)
7 CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
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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.
8 CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
Property
Land
Building
Land & Building
Rentals Capital
Appreciation Rentals & Capital
Appreciation
Held for
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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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CA Pranav Joshi, Partner | P. G. Joshi & Co., Chartered Accountants
Investment Property (Examples)
10
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
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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
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Recognition
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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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Measurement
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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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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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◦ 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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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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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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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
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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
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De-Recognition
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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
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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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Disclosures
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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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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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Thank You CA Pranav Joshi
Partner
P. G. Joshi & Co. , Chartered Accountants
www.pgjco.com