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CA Final · Financial Reporting · Ind AS 40 Investment Property

Meridian Holdings Ltd acquires a company, Skyline Realty Pvt Ltd, whose only significant asset is a rented office tower, together with its employees, leasing processes and property management systems. Management says Ind AS 40 alone governs the transaction because the tower is investment property. What is the correct approach?

Meridian must refer to Ind AS 103 to decide whether the acquisition is a business combination. Ind AS 40 only addresses classification of property, so where the deal is a business combination that includes investment property, both Standards are applied separately.

  1. AApply Ind AS 40 only, as the main asset is investment property
  2. BApply Ind AS 103 only, because any acquisition of a company is a business combination
  3. CDetermine under Ind AS 103 whether the acquisition is a business combination; if so and it includes investment property, apply both Standards separatelyCorrect
  4. DApply Ind AS 16 since the tower is acquired through a share purchase

Explanation

Whether an acquisition is an asset, a group of assets or a business combination needs separate judgement by reference to Ind AS 103. The guidance on owner-occupied versus investment property does not decide that question. Where the transaction is a business combination including investment property, both Standards are applied separately. Option 2 is wrong as not every acquisition qualifies as a business combination.

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