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CA Final · Financial Reporting · Ind AS 40 Investment Property

Vihaan Realty Ltd acquires a company that owns a single office building together with a property management team, tenants' lease contracts, and processes for billing and maintenance. Vihaan's finance head says Ind AS 40 alone will decide how the acquisition is accounted for since the main asset is an investment property. What is the correct approach under Ind AS 40?

Vihaan should refer to Ind AS 103 to decide whether the acquisition is a business combination. Ind AS 40's classification guidance does not decide that question, and where it is a business combination including investment property, both Ind AS 103 and Ind AS 40 apply separately.

  1. AApply only Ind AS 40, because the main asset is a property
  2. BApply only Ind AS 103, because any acquisition including property is a business combination
  3. CApply Ind AS 16 first and then Ind AS 40 for the remaining part
  4. DUse Ind AS 103 to decide whether it is a business combination; if it is and includes investment property, apply both Standards separatelyCorrect

Explanation

Ind AS 40 states that judgement is needed to decide whether an acquisition is an asset, group of assets or business combination, and Ind AS 103 must be referred to. Paragraphs 7-14 only address owner-occupied versus investment property. A transaction that is a business combination and includes investment property requires separate application of both Standards.

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