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CA Final · Financial Reporting · Ind AS 116 Leases

Meera Estates Ltd., an Ind AS reporting entity, is a lessee and holds a right-of-use asset that meets the definition of investment property under Ind AS 40. A finance executive suggests applying the fair value model to this right-of-use asset, as IFRS 16 allows when an entity uses the fair value model for investment property. What is the position under Ind AS 116?

The fair value model cannot be applied. Ind AS 40 does not permit the fair value model, so Ind AS 116 deletes IFRS 16 paragraph 34 and its reference in paragraph 29. Such a right-of-use asset is therefore measured by the cost model.

  1. APermitted, because Ind AS 116 retains the IFRS 16 paragraph on fair value model
  2. BPermitted only if the lease term exceeds 25 years
  3. CNot permitted, because Ind AS 40 does not allow the fair value model and the corresponding IFRS 16 paragraph 34 is deleted in Ind AS 116Correct
  4. DNot permitted only for leasehold land, permitted for buildings

Explanation

Ind AS 40 does not allow the fair value model, so paragraph 34 of IFRS 16 has been deleted in Ind AS 116 and the reference to it in paragraph 29 removed. The first option is wrong because the paragraph was deleted. There is no lease-term or land-versus-building exception.

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