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CA Final · Financial Reporting · Ind AS 116 Leases

Kaveri Infra Ltd is reviewing differences between Ind AS 116 and IFRS 16. Its CFO notes that Ind AS 40 Investment Property permits only the cost model. Which statement about subsequent measurement of a right-of-use asset that meets the definition of investment property is correct under Ind AS 116?

Ind AS 116 deletes the IFRS 16 paragraph that allowed the fair value model for right-of-use assets meeting the investment property definition. Because Ind AS 40 does not permit the fair value model, no fair value option exists for such right-of-use assets under Ind AS.

  1. AInd AS 116 omits the IFRS 16 provision allowing the fair value model for such right-of-use assets, since Ind AS 40 does not allow the fair value modelCorrect
  2. BThe right-of-use asset must be remeasured to fair value each year through profit or loss
  3. CThe entity may choose the fair value model for such right-of-use assets even though Ind AS 40 does not allow it
  4. DSuch right-of-use assets are excluded from Ind AS 116 and are never recognised

Explanation

IFRS 16 paragraph 34 allowed the fair value model for right-of-use assets meeting the investment property definition when the lessee applied the IAS 40 fair value model. Since Ind AS 40 does not allow fair value, that paragraph was deleted in Ind AS 116 and the reference in paragraph 29 removed. The option permitting a fair value choice is therefore wrong.

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