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CA Final · Financial Reporting · Ind AS 40 Investment Property

Narmada Infra Ltd owns a building and leases it to another entity under a finance lease, transferring substantially all risks and rewards of ownership. How should Narmada treat this building in relation to Ind AS 40?

The building is outside Ind AS 40. The standard lists property leased to another entity under a finance lease as not being investment property, so even though rentals are received, the lessor does not classify it as investment property.

  1. AIt is investment property, because rentals are earned
  2. BIt is investment property only if the lessee is unrelated
  3. CIt is outside Ind AS 40, because property leased to another entity under a finance lease is not investment propertyCorrect
  4. DIt is owner-occupied property under Ind AS 16

Explanation

Ind AS 40 lists property leased to another entity under a finance lease among items that are not investment property and are outside its scope. The lessor derecognises the asset and recognises a lease receivable under Ind AS 116. Option about Ind AS 16 is wrong because the lessor is not using the building itself.

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