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CA Final · Financial Reporting · Ind AS 116 Leases

Mehta Realty Ltd leases a commercial building under a lease that gives it the right to use the building for 10 years. The building meets the definition of investment property in Ind AS 40, and the right-of-use asset therefore meets that definition. A finance manager argues that, as in IFRS 16, the right-of-use asset should be remeasured at fair value because the group would use a fair value model for investment property. Which statement is correct under Ind AS 116?

The fair value paragraph of IFRS 16 has been deleted in Ind AS 116, because Ind AS 40 does not allow the fair value model for investment property. So the right-of-use asset cannot be remeasured at fair value under that route, and the manager's argument fails.

  1. AFair value model applies to the right-of-use asset, as in IFRS 16, if the entity elects it
  2. BFair value model is mandatory for such right-of-use assets in Ind AS
  3. CThe fair value paragraph of IFRS 16 has been deleted in Ind AS 116 because Ind AS 40 does not allow the fair value modelCorrect
  4. DFair value model applies only if the lease term exceeds 10 years

Explanation

IFRS 16 paragraph 34 allows the fair value model for right-of-use assets meeting the investment property definition if the lessee applies the IAS 40 fair value model. Ind AS 40 does not permit the fair value model, so the paragraph was deleted in Ind AS 116 and the reference removed from paragraph 29. The lease term has no bearing on this.

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