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CA Final · Financial Reporting · Ind AS 40 Investment Property

Meridian Holdings Ltd acquires a company that owns a rented commercial complex along with staff, property management processes and leasing contracts. The CFO asks how to account for the acquisition. Per Ind AS 40, what is the correct approach?

The company must refer to Ind AS 103 to decide whether the acquisition is a business combination. Ind AS 40 paragraphs on owner-occupied versus investment property do not decide that question. If it is a business combination including investment property, both Standards are applied separately.

  1. AApply only Ind AS 40, since the main asset is an investment property
  2. BApply only Ind AS 103, since the complex has tenants
  3. CDetermine under Ind AS 103 whether the acquisition is a business combination; if it is and includes investment property, apply both Standards separatelyCorrect
  4. DTreat it as an asset acquisition automatically because the Ind AS 40 ancillary services guidance applies

Explanation

Ind AS 40 says judgement is needed on whether an acquisition is an asset, group of assets or business combination, and reference should be made to Ind AS 103. Where the transaction is a business combination including investment property, both Standards apply separately. Applying Ind AS 40 alone ignores this requirement.

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