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CA Final · Financial Reporting · Ind AS 40 Investment Property

Godavari Estates Ltd owns a warehouse which it has leased to another entity under a finance lease. Godavari's accountant wants to present the warehouse as investment property because rentals are earned. What is the correct treatment under Ind AS 40?

The warehouse is not investment property. Ind AS 40 specifically places property leased to another entity under a finance lease outside its scope, so earning rentals from it does not bring it within the investment property definition; it is accounted for under the lease standard.

  1. AInvestment property, because rentals are earned on it
  2. BNot investment property, because property leased to another entity under a finance lease is outside the scope of Ind AS 40Correct
  3. CInvestment property only if the lease term exceeds ten years
  4. DOwner-occupied property under Ind AS 16, because the lessor keeps legal title

Explanation

Ind AS 40 lists property leased to another entity under a finance lease as not being investment property and outside its scope. Earning rentals alone does not qualify it. Owner-occupied treatment is also wrong because Godavari does not use it for its own operations.

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