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CA Final · Financial Reporting · Ind AS 116 Leases

Kaveri Infra Ltd holds an investment property under a lease and recognises a right-of-use asset for it. The finance team of its IFRS-reporting parent suggests applying the fair value model to this right-of-use asset because the parent does so under IAS 40. Which statement is correct for Kaveri's Ind AS financial statements?

The fair value model is not available. Ind AS 40 does not allow the fair value model, so paragraph 34 of IFRS 16, which permitted it for right-of-use assets that are investment property, was deleted in Ind AS 116. The parent's IFRS practice does not change the Ind AS treatment.

  1. AThe fair value model may be applied to the right-of-use asset if the parent does so for consistency
  2. BThe fair value model is not available because Ind AS 40 does not allow the fair value model, and paragraph 34 of IFRS 16 has been deleted in Ind AS 116Correct
  3. CThe fair value model is mandatory for right-of-use assets meeting the definition of investment property
  4. DThe fair value model is allowed only for the first reporting period after lease commencement

Explanation

Ind AS 40 does not permit the fair value model. Therefore the IFRS 16 paragraph 34 dealing with applying the fair value model to right-of-use assets that are investment property has been deleted in Ind AS 116, with the paragraph number retained. Applying fair value to the right-of-use asset is thus not permitted, so the parent-consistency option is wrong.

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