Investment Property (Ind AS 40) Scope, definitions, Recognition and Measurement of the above-mentioned Standards

Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. [IAS 40.5]

Examples of investment property: [IAS 40.8]

• Land held for long-term capital appreciation
• Land held for a currently undetermined future use
• Building leased out under an operating lease
• Vacant building held to be leased out under an operating lease
• Property that is being constructed or developed for future use as investment property.

The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and 40.9]

• Property held for use in the production or supply of goods or services or for administrative purposes
• Property held for sale in the ordinary course of business or in the process of construction of development for such sale (ias 2 inventories).
• Property being constructed or developed on behalf of third parties (ias 11 construction contracts).
• Owner-occupied property (ias 16 property, plant and equipment), including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal.
• Property leased to another entity under a finance lease.

Scope of Ind AS 40: Investment Property

1) Ind AS 40 should be applied in the recognition, measurement and disclosure of investment property.

2) This Standard doesn’t apply to:

a) Biological assets are also related to agricultural activity (see Ind AS 41 ‘Agriculture’ and Ind AS 16 ‘Property, Plant and Equipment).

b) Mineral rights and mineral reserves and minerals such as oil, natural gas and similar non-regenerative resources.

Recognition in Ind AS 40 

General principle

An owned investment is property shall be recognized as an asset when, and only when:

a) Probably, the future economic benefits associated with the investment property will flow to the entity.

b) The expense of the investment property can be reliably measured.

This general principle is used to consider whether capitalization is appropriate both in respect of the cost incurred in a initially to acquire or construct an owned investment property. The costs incurred subsequently will be  add to, replace part of, or service a property.

An investment property which is hold by a lessee as a right-of-use asset shall be recognized following Ind AS 116.

Subsequent costs

Day-to-day servicing costs:

Under the recognition principle set out above, an entity does not recognize the costs of the day-to-day servicing of such property in the carrying amount of an investment property.

Rather, these costs are recognized in the profit or loss as incurred. Costs of daily servicing are primarily the cost of labour and consumables and might be including the cost of minor parts. The purpose of these expenditures can be often described as for the ‘repairs and maintenance of the property.

Replacement costs:

Parts of investment properties might have been acquired through replacement. Under the recognition principle, an entity recognizes costs incurred to mainly replace parts of original property in the carrying amount in investment property. if they meet the recognition criteria. The carrying value of those parts that are replaced is derecognized following the derecognition provisions of this Standard.

Measurement of Recognition

Measurement at recognition: General

An owned type investment property should be basically measured initially at its cost. Transaction costs are mainly included in the initial measurement.

Cost Inclusions:

The cost of a purchased investment property also comprises its purchase price and any of directly attributable expenditure. The professional fees for legal services, property transfer taxes and other transaction costs.

Cost Exclusions:

The cost of an investment property isn’t increased by:

a) Start-up costs cannot be necessary for bringing the property for the condition which is necessary. It is capable of been operating in the manner which the intended by management.

b) Operating losses which are incurred before the investment property is achieving the planned level of occupancy.

c) Abnormal value of wasted material, labor or other resources can be incurred in constructing or developing the property.

2) Deferred payments

If payment for an investment property is delay then its cost will be cash price equivalent. The distinction between this amount and the total payments can be recognized as interest expense throughout the credit.

Investment property acquired through exchange of another asset.

One or more investment properties might be acquired by exchange for a non-monetary asset.  Assets or any combination of monetary and or non-monetary assets. The cost of such an investment property can be measured at fair value unless:

a) The exchange transaction lacks commercial substance.

b) The fair value of nor the asset which is received nor the asset is given up is reliably measurable.

The acquired asset can be measured in this way, even if an entity cannot be immediately derecognizing the asset which is given up. If the acquired asset cannot be measured at fair value, its cost is measured at the carrying amount of the asset given up.

An entity can determine whether AS an exchange transaction has commercial substance by mainly considering the extent to which company future cash flows are expected to change due to the transaction. An exchange transaction can be commercial substance if:

a) The arrangement (risk, amount and timing) of the cash flows of the asset is received differs from the mainly in configuration of the cash flows of the asset transferred.

b) The entity mainly which is specific amount of the portion of the entity’s operations can be affected by the transaction changes resulting from the exchange.

c) The difference between (a) or (b) is significant which is relative to measuring a fair value of any assets exchanged.

To mainly determine whether you seen an exchange transaction has commercial substance. The which has entity-specific value of the portion of the entity’s operations affected by the transaction, as mentioned earlier, shall reflect the post-tax cash flows. The result of this analysis may be clear without an entity having to perform detailed calculations.

The fair value of any asset which can be reliably measurable if:

a) The fluctuation in the range of reasonable, fair value measurements cannot be significant for that asset.

b) The probabilities of the various can be estimated within the range can be reasonably assessed and used when measuring fair value.

Suppose the entity can measure reliably the fair value of either the asset received or the asset is given up. In case, the fair value of any asset which is given up mainly to used or to measure cost unless the fair value. The asset received is more clearly evident.

An investment property can be held by a lessee as a right-of-use asset should be measured initially at its cost following Ind AS 116.

MEASUREMENT AFTER RECOGNITION

Accounting Policy

An entity that shall adopt as its an accounting policy the cost model to all of its investment property.

Cost Model:

After initial recognition, an entity shall measure investment property:

(a) Following Ind AS 105, Non-current Assets which is Held for Sale and Discontinued Operations if it mainly meets any of the criteria. To be classified as a held for sale. It is included in a disposal group that is classified as held for sale.

(b) Following Ind AS 116 if it is held by a lessee as a right-of-use asset and is not held for sale following Ind AS 105.

(c) Following the requirements in Ind AS 16 for cost model in all other cases.

Entities are required to measure the fair value of investment property for disclosure even though they must follow the cost model. An entity can be encouraged but is not required for measuring the fair value of an investment property.

Based on a valuation by any independent valuer mainly who holds a recognized and a relevant professional qualification. Recent experience in location and a category of the investment property being valued.