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CA Final · Financial Reporting · Ind AS 40 Investment Property

Kaveri Textiles Ltd acquired a plot of land in Pune with the intention of developing it into residential flats and selling them to buyers in the near future. Until construction begins, the plot is vacant. How should Kaveri Textiles classify the plot under Ind AS?

The plot is inventory under Ind AS 2. Ind AS 40 excludes property intended for sale in the ordinary course of business or in the process of development for such sale, including property acquired for development and resale, so it is not investment property.

  1. AInvestment property under Ind AS 40, because the land is vacant and earns no operating income
  2. BInventory under Ind AS 2, because it is held for development and resale in the ordinary course of businessCorrect
  3. CProperty, plant and equipment under Ind AS 16, because the company owns the land
  4. DInvestment property until construction starts, then inventory

Explanation

Ind AS 40 lists property intended for sale in the ordinary course of business, or under development for such sale, as outside its scope; such property falls under Ind AS 2. Kaveri's plot is acquired for development and resale, so it is inventory from the outset. Treating it as investment property because it is vacant ignores the intention to sell.

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