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CA Final · Financial Reporting · Ind AS 40 Investment Property

Sundaram Realty Ltd acquired a commercial building in Pune, intending to rent it out to tenants for long-term rentals and to benefit from price appreciation. The building generates cash flows largely independent of Sundaram's other assets. How should the building be classified under Ind AS 40?

The building is investment property under Ind AS 40. It is held to earn rentals or for capital appreciation or both, and it generates cash flows largely independently of the entity's other assets, unlike owner-occupied property used in production, supply or administration.

  1. AInvestment property, because it is held to earn rentals or for capital appreciation or bothCorrect
  2. BInventory under Ind AS 2, because it was recently purchased
  3. CProperty, plant and equipment under Ind AS 16, because it is a building
  4. DNon-current asset held for sale under Ind AS 105, because appreciation will be realised on sale

Explanation

Investment property is held to earn rentals or for capital appreciation or both, and it generates cash flows largely independently of the entity's other assets. The building meets this test. Classifying it as PPE would be wrong because PPE is used in production, supply of goods or services, or administration, which is not the case here.

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