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CA Final · Financial Reporting · Ind AS 40 Investment Property

Ind AS 40 notes that an investment property generates cash flows largely independently of the other assets held by an entity. Gomti Hotels Ltd owns a hotel in Jaipur and runs it with its own staff and services. Which conclusion follows from this principle?

The hotel is owner-occupied property accounted for under Ind AS 16. Its cash flows come from supplying services using staff and other assets, not from the property alone, whereas investment property generates cash flows largely independently of the entity's other assets.

  1. AThe hotel is investment property because it earns revenue from guests
  2. BThe hotel is owner-occupied property, as cash flows come from production or supply of services using other assets too, and Ind AS 16 appliesCorrect
  3. CThe hotel is investment property if its fair value exceeds its carrying amount
  4. DThe hotel is inventory because services are supplied in the ordinary course

Explanation

Ind AS 40 says the supply of goods or services generates cash flows attributable not only to the property but also to other assets used in the process, which distinguishes owner-occupied property. Ind AS 16 applies to owned owner-occupied property. Fair value is irrelevant to classification.

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