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CA Final · Financial Reporting · Ind AS 40 Investment Property

Kaveri Textiles Ltd owns a building. It lets out the building to its own employees, who pay rent at market rates. The building generates no cash flows independent of the company's other assets in the view of management. How should the building be classified under Ind AS 40?

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 charging market rent does not change the classification.

  1. AInvestment property, because employees pay market rent
  2. BInventory under Ind AS 2, because it is let out regularly
  3. COwner-occupied property under Ind AS 16, because property occupied by employees is not investment property even if market rent is paidCorrect
  4. DInvestment property, but only if rent exceeds depreciation

Explanation

Ind AS 40 lists property occupied by employees, whether or not they pay rent at market rates, as owner-occupied property outside its scope, dealt with under Ind AS 16. Market rent therefore does not make it investment property. Inventory applies only to property held for sale in the ordinary course.

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