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Financial Reporting · Ind AS 40 Investment Property

Subsequent Measurement under Ind AS 40: The Cost Model

Updated 5 October 2026 · Fact-checked

Ind AS 40 requires every entity to measure investment property after recognition using the cost model: cost less accumulated depreciation and impairment losses. The fair value model allowed by IAS 40 is not permitted. You must still disclose fair value, based on a registered valuer's valuation where available. To solve, depreciate, test impairment, disclose fair value.

Understand Subsequent Measurement: Cost Model under Ind AS 40

After you recognise an investment property at cost, you must decide how to carry it in later years. This is subsequent measurement. IAS 40 gives a choice between two models for all investment property: the cost model and the fair value model.

Ind AS 40 removes that choice. It allows only the cost model. You carry the property at cost less accumulated depreciation and accumulated impairment losses. The mechanics are the same as the cost model for PPE under Ind AS 16. So you depreciate over the useful life, use component accounting where parts have different lives, and test for impairment under Ind AS 36.

Under IAS 40's fair value model, the property is not depreciated. Changes in fair value go to profit or loss each year. Ind AS 40 does not allow this. A commonly cited reason is that unrealised fair value gains would flow through profit or loss, and reliable property valuation was seen as difficult in the Indian environment. Know the carve-out itself; treat the reasons as background.

The cost model does not mean fair value is ignored. Ind AS 40 requires you to disclose the fair value of investment property in the notes. Fair value is measured under Ind AS 113. The standard also asks you to disclose how far the fair value rests on a valuation by a registered valuer (as defined in the Companies (Registered Valuers and Valuation) Rules, 2017). If there was no such valuation, you disclose that fact. This differs from IAS 40, which refers to an independent valuer with a recognised professional qualification and recent experience, and only encourages such a valuation.

If fair value cannot be measured reliably in exceptional cases, you disclose a description of the property, why fair value cannot be determined reliably, and, if possible, the range of estimates within which fair value is highly likely to lie. The carrying amount stays on the cost model throughout.

Key rules to remember

Carrying amount under cost model
Carrying amount = Cost − Accumulated depreciation − Accumulated impairment losses
The only measurement basis allowed after recognition under Ind AS 40.
Annual straight-line depreciation
Depreciable amount ÷ Useful life = (Cost − Residual value) ÷ Useful life
Land is not depreciated. Depreciate building and significant components separately if their lives differ.
Fair value disclosure rule
Notes must show fair value of investment property; fair value is NOT recognised in the balance sheet or profit or loss
Fair value is measured under Ind AS 113. Disclose the extent of a registered valuer's valuation, or state that there was none.
Impairment test
Impairment loss = Carrying amount − Recoverable amount, if positive; Recoverable amount = higher of (fair value less costs of disposal) and value in use
A fall in fair value is not an impairment loss by itself. A significant fall in fair value, much more than expected from the passage of time or normal use, is an indicator under Ind AS 36. Then compare carrying amount with recoverable amount, including value in use, before booking a loss.
Ind AS 40 vs IAS 40
Ind AS 40: cost model only. IAS 40: cost model or fair value model (one policy for all investment property, subject to its exceptions)
Fair value disclosure is required under both.

How to solve Subsequent Measurement: Cost Model under Ind AS 40 questions

Use this method for any question on subsequent measurement of investment property under Ind AS 40.

  1. 1Confirm the asset is investment property: held to earn rentals or for capital appreciation, not for own use or sale in the ordinary course.
  2. 2State the policy: Ind AS 40 permits only the cost model, so any fair value model treatment in the question must be rejected.
  3. 3Compute depreciation under Ind AS 16 principles. Exclude land and use component accounting if parts have different useful lives.
  4. 4Find the carrying amount: cost less accumulated depreciation and impairment losses.
  5. 5If there is an indicator under Ind AS 36, such as a significant fall in fair value (a decline much larger than expected from time or normal use), test impairment by comparing carrying amount with recoverable amount.
  6. 6Treat any fair value gain as not recognised. Do not take it to profit or loss or to a revaluation reserve.
  7. 7Write the disclosure: fair value (Ind AS 113), the extent based on a registered valuer's valuation or the fact that none was obtained, and the depreciation method and useful lives.
  8. 8If the question compares with IAS 40, state the difference in model choice and in the valuer wording.

Quickest way: Three-line cost model check

When to use it: Use this in MCQs and short-note questions when time is limited.

  1. Ask: Ind AS or IAS? If Ind AS, the answer is cost model only.
  2. Carrying amount = cost − depreciation − impairment. Fair value changes do not touch the books.
  3. Fair value still goes in the notes, with the registered valuer point.

Common mistakes in Subsequent Measurement: Cost Model under Ind AS 40

  • Applying the fair value model and booking gains in profit or loss for an Ind AS company.

    Students carry over IAS 40 knowledge and see that property values have risen.

    Fix: Remember that Ind AS 40 allows only the cost model. Fair value is a disclosure item, not a measurement basis.

  • Saying that fair value need not be disclosed because the cost model is used.

    Students link fair value only with the fair value model.

    Fix: Disclose fair value of investment property in the notes. Only in the exceptional case where fair value cannot be measured reliably do you give the alternative disclosures.

  • Depreciating the land along with the building.

    Students depreciate the whole cost figure given in the question.

    Fix: Split land and building. Land generally has an unlimited life and is not depreciated.

  • Booking an impairment loss because fair value is below carrying amount.

    Students treat fair value as the recoverable amount and treat any fall as an impairment.

    Fix: A significant fall in fair value is an indicator, not a loss. Recoverable amount is the higher of fair value less costs of disposal and value in use. Compute both before concluding.

  • Writing that Ind AS 40 refers to an independent valuer, exactly like IAS 40.

    The two standards sound alike in this disclosure.

    Fix: For Ind AS 40, write registered valuer as defined in the Companies (Registered Valuers and Valuation) Rules, 2017, and state the fact if no such valuation exists.

  • Showing the fair value difference as a revaluation surplus in other comprehensive income.

    Students mix up the Ind AS 16 revaluation model with Ind AS 40.

    Fix: Revaluation is not available for investment property. No fair value gain or loss is recognised.

Worked examples

Example 1

Case: Meru Realty Ltd, an Ind AS company, bought a commercial complex on 1 April 2026 and leases it out to tenants. Land cost ₹2,00,00,000 and building cost ₹5,00,00,000. The building has a useful life of 25 years and nil residual value. On 31 March 2027, a registered valuer assessed the fair value of the whole property at ₹8,10,00,000. The CFO wants to show a gain of ₹1,30,00,000 (the excess of fair value over the depreciated carrying amount) in profit or loss. Advise on the accounting and disclosure.

Show the solution
  1. Classification: the property is held to earn rentals, so it is investment property.
  2. Policy: Ind AS 40 allows only the cost model. The fair value model cannot be used for measurement.
  3. Depreciation for the year: ₹5,00,00,000 ÷ 25 = ₹20,00,000. Land is not depreciated.
  4. Carrying amount at 31 March 2027: building ₹5,00,00,000 − ₹20,00,000 = ₹4,80,00,000; land ₹2,00,00,000; total ₹6,80,00,000.
  5. Fair value of ₹8,10,00,000 is above carrying amount, so there is no impairment indicator from this.
  6. The CFO's ₹1,30,00,000 is the excess of fair value over the depreciated carrying amount: ₹8,10,00,000 − ₹6,80,00,000 = ₹1,30,00,000. It is not recognised in profit or loss or OCI. Note that this figure includes the ₹20,00,000 of depreciation, so it is not a fair value model gain. Under IAS 40's fair value model, the gain over cost would be ₹8,10,00,000 − ₹7,00,00,000 = ₹1,10,00,000, with no depreciation charged.
  7. Disclosure: fair value ₹8,10,00,000 in the notes, measured under Ind AS 113, and the fact that it is based on a registered valuer's valuation; also the depreciation method and useful life.

Answer: The carrying amount is ₹6,80,00,000. Depreciation of ₹20,00,000 goes to profit or loss. The ₹1,30,00,000 excess of fair value over carrying amount is not recognised. Disclose fair value of ₹8,10,00,000 with the registered valuer basis.

Example 2

Case: Using the facts above, assume that at 31 March 2028 the carrying amount is ₹6,60,00,000 and fair value falls to ₹6,20,00,000 because of a local market slowdown. Costs of disposal are negligible. Management estimates the value in use at ₹6,90,00,000. Is an impairment loss required? How does the treatment differ under the fair value model of IAS 40?

Show the solution
  1. Under Ind AS 40, the property stays on the cost model. The fall in fair value from ₹8,10,00,000 to ₹6,20,00,000 is significant, far more than the passage of time or normal use would cause. It is therefore an indicator under Ind AS 36, so test impairment.
  2. Recoverable amount is the higher of fair value less costs of disposal (₹6,20,00,000) and value in use (₹6,90,00,000). That is ₹6,90,00,000.
  3. Compare: carrying amount ₹6,60,00,000 is below recoverable amount ₹6,90,00,000, so no impairment loss arises.
  4. Disclosure: fair value of ₹6,20,00,000 is shown in the notes, which is below carrying amount. Disclose that it is based on a registered valuer's valuation, or state that there was none.
  5. Under IAS 40's fair value model, the property would have been carried at ₹8,10,00,000 at 31 March 2027, after a gain of ₹1,10,00,000 in 2026-27 (₹8,10,00,000 − ₹7,00,00,000) and with no depreciation charged. It would then be remeasured to ₹6,20,00,000, and the loss of ₹1,90,00,000 (₹8,10,00,000 − ₹6,20,00,000) would go to profit or loss in 2027-28. This is not allowed under Ind AS 40.

Answer: No impairment loss is recognised, and the carrying amount remains ₹6,60,00,000. Fair value of ₹6,20,00,000 is disclosed only. Under IAS 40's fair value model, the property would have been carried at ₹8,10,00,000 at 31 March 2027 (after a gain of ₹1,10,00,000 in 2026-27 and no depreciation), so a loss of ₹1,90,00,000 (₹8,10,00,000 − ₹6,20,00,000) would be recognised in profit or loss in 2027-28.

Exam tips

  • In comparison questions, put Ind AS 40 and IAS 40 side by side on three points: measurement model, treatment of fair value changes, and the valuer wording in the disclosure.
  • In case-scenario MCQs, reject any option that recognises a fair value gain in profit or loss or in OCI for an Ind AS company.
  • Always give a number for carrying amount and for the unrecognised fair value difference. Show land and building separately.
  • Write answers in provision-facts-conclusion form: state the Ind AS 40 rule, apply it to the numbers, then conclude and list the disclosures.
  • Use the exact phrase registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017, when the question is about who values the property.

Practice questions from Ind AS 40 Investment Property

Subsequent Measurement: Cost Model under Ind AS 40 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Subsequent Measurement: Cost Model under Ind AS 40: frequently asked questions

Why is the fair value model not allowed in Ind AS 40?

Ind AS 40 deliberately carves out the fair value model and allows only the cost model. The reasons usually given are that unrealised fair value gains would flow through profit or loss, and that reliable valuations were seen as difficult in India. In the exam, state the carve-out and its effect clearly.

Is fair value disclosure still required under the cost model?

Yes. Ind AS 40 requires you to disclose the fair value of investment property in the notes, measured under Ind AS 113. In exceptional cases where fair value cannot be reliably measured, you disclose a description, the reason and, if possible, a range of estimates.

What is the difference between Ind AS 40 and IAS 40 on the valuer?

IAS 40 refers to a valuation by an independent valuer with a recognised and relevant professional qualification and recent experience, and it only encourages such a valuation. Ind AS 40 refers to a registered valuer as defined in the Companies (Registered Valuers and Valuation) Rules, 2017. If there is no such valuation, you disclose that fact.

Do I depreciate investment property under the cost model?

Yes. You apply the Ind AS 16 cost model approach, so the building is depreciated over its useful life and significant components are depreciated separately. Land is generally not depreciated. You also test for impairment under Ind AS 36.