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CA Intermediate · Advanced Accounting · AS 13 Accounting for Investments

Mehra Realty Ltd. purchased a commercial building in Pune and does not use it in its own business. It holds the building only to earn rentals and for long-term capital appreciation. Under AS 13, how should the building be treated in the books?

A building held only to earn rentals or for capital appreciation is investment property under AS 13. It is treated as a long-term investment and carried at cost less any permanent diminution in value, not as property, plant and equipment under AS 10.

  1. AAs property, plant and equipment under AS 10, depreciated over its useful life
  2. BAs an investment property, shown as a long-term investment at cost less any permanent diminution in valueCorrect
  3. CAs inventory, valued at lower of cost and net realisable value
  4. DAs a current investment, valued at lower of cost and fair value

Explanation

AS 13 defines investment property as land or buildings held to earn rentals or for capital appreciation, not for use in the business. It is an investment and is not covered by AS 10 or AS 2. Such a property is held for the long term, so it is a long-term investment carried at cost less a provision for permanent diminution. The current investment treatment is wrong because the holding is not intended to be realised within a year.

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