Ind AS 40 Investment Property: Disposals and Disclosures

Understand Disposals and Disclosures

Key rules to remember

Gain or loss on derecognition

Gain or (loss) = Net disposal proceeds − Carrying amount of the property

Recognise in profit or loss in the period of retirement or disposal. Not shown as revenue.

Derecognition trigger

Derecognise on (a) disposal, or (b) permanent withdrawal from use with no future economic benefits expected from disposal

Disposal includes sale and a finance lease given as lessor.

Compensation from third parties

Recognise in profit or loss when the compensation becomes receivable

Impairment (Ind AS 36), compensation and replacement purchase are separate events.

Deferred consideration

Consideration = cash price equivalent; excess of total payments over it = interest revenue over the credit period

Applies when payment is deferred beyond normal credit terms.

Replaced part

Derecognise carrying amount of replaced part; if not determinable, the cost of the replacement may be used as an indication

Applies when the cost of the replacement is capitalised.

Fair value disclosure (cost model)

Disclose the fair value of investment property; if it cannot be measured reliably, disclose that fact, a description, why, and the range of estimates

Ind AS 40 requires this even under the cost model.

How to solve Disposals and Disclosures questions

1. 1Identify whether the property qualifies as investment property at the date of the event.
2. 2Decide whether derecognition applies: a sale, a finance lease, or permanent withdrawal with no expected benefits. A property merely idle or awaiting redevelopment is not derecognised.
3. 3Fix the date of disposal using Ind AS 115 (transfer of control) for sales, or Ind AS 116 for leases.
4. 4Compute the carrying amount at that date. Update depreciation up to the date of disposal and deduct accumulated impairment.
5. 5Compute net disposal proceeds: consideration at fair value (cash price equivalent) less directly attributable selling costs.
6. 6Calculate gain or loss and recognise it in profit or loss. Treat any third-party compensation separately, when it becomes receivable.
7. 7Add the required disclosures: the fair value, amounts in profit or loss, restrictions, contractual obligations, and a reconciliation where relevant.

Quickest way: Three-line disposal check

Common mistakes in Disposals and Disclosures

• Taking a gain on disposal to revenue or other comprehensive income.

  Students link gains on property with revaluation surplus under Ind AS 16.

  Fix: Under Ind AS 40 the gain or loss on derecognition always goes to profit or loss, and it is not presented as revenue.

• Using the original cost instead of the carrying amount.

  Students forget depreciation and impairment up to the date of sale.

  Fix: Bring depreciation up to the disposal date, deduct impairment, then compare with net proceeds.

• Netting compensation against the impairment loss or the replacement asset.

  The three events seem connected.

  Fix: Account separately: impairment under Ind AS 36, compensation in profit or loss when receivable, replacement asset at its own cost.

• Derecognising a property merely because it is vacant or being redeveloped.

  Students confuse temporary non-use with permanent withdrawal.

  Fix: Derecognise only on disposal or permanent withdrawal with no future benefits. A property being redeveloped for continued use as investment property remains one.

• Omitting fair value disclosure under the cost model.

  Students think fair value matters only for the fair value model.

  Fix: Ind AS 40 permits only the cost model, but still requires disclosure of fair value, with exceptions when it cannot be measured reliably.

• Ignoring selling costs when computing the gain.

  The question gives the price in the first line and costs later.

  Fix: Use net disposal proceeds: consideration less directly attributable costs of disposal.

Worked examples