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CA Final · Financial Reporting · Ind AS 40 Investment Property

Kaveri Textiles Ltd owns a building in Surat. Its head office staff occupy the whole building, and the employees pay rent to the company at market rates. How should Kaveri classify the building under Ind AS?

The building is owner-occupied property accounted for under Ind AS 16. Ind AS 40 states that property occupied by employees is not investment property, whether or not the employees pay rent at market rates, so the market-rent feature does not change the classification.

  1. AInvestment property, because rent is received at market rates
  2. BInventory under Ind AS 2, because it is let to employees
  3. CProperty, plant and equipment under Ind AS 16, because property occupied by employees is not investment property whether or not they pay market rentCorrect
  4. DInvestment property, but only if the rent exceeds depreciation

Explanation

Ind AS 40 lists property occupied by employees (whether or not the employees pay rent at market rates) among items that are not investment property, as owner-occupied property under Ind AS 16. The market rent option is wrong because the paragraph expressly makes it irrelevant.

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