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CA Final · Financial Reporting · Ind AS 40 Investment Property

Dhanvi Enterprises Ltd owns a building in Chennai. It leases the entire building to its wholly unrelated competitor under a finance lease. Dhanvi's accountant proposes to present the building as investment property because rentals are earned. What is the correct position under Ind AS 40?

The building is not investment property. Ind AS 40 specifically excludes property that is leased to another entity under a finance lease, so the earning of rentals does not bring it within the standard; it is dealt with under the leasing standard.

  1. AIt is investment property because the building is held to earn rentals
  2. BIt is investment property only if the lease term exceeds 10 years
  3. CIt is not investment property, because property leased to another entity under a finance lease is outside the scope of Ind AS 40Correct
  4. DIt is owner-occupied property under Ind AS 16 since Dhanvi retains legal title

Explanation

Ind AS 40 lists property leased to another entity under a finance lease among items that are not investment property. Hence, despite lease rentals, the building is outside the standard. The lessor treats it as a lease receivable under Ind AS 116 instead. Option 3 is wrong as the building is not used by Dhanvi itself.

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