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Investment Property

Ind AS - 040 - Rules - B. Indian Accounting Standards (Ind AS) - Companies (Indian Accounting Standards) Rules, 2015 - Ind AS - 040 - Indian Accounting Standard (Ind AS) 40 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Standard is to prescribe the accounting treatment for and related disclosure requirements. Scope 2 This Standard shall be ap .....

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lease income from (see also Ind AS 115, Revenue from Contracts with Customers);] (c) measurement in a lessee s financial statements of property interests held under a lease accounted for as an operating lease; (d) measurement in a lessor s financial statements of its net investment in a finance lease; (e) accounting for sale and leaseback transactions; and (f) disclosure about finance leases and operating leases. 4 This Standard does not apply to: (a) biological assets related to agricultural ac .....

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acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other Ind ASs, eg Ind AS 102, Share based Payment. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement). is property (land or a building-or part of a building-or both) held (by .....

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[Refer Appendix 1] 7 is held to earn rentals or for capital appreciation or both. Therefore, an generates cash flows largely independently of the other assets held by an entity. This distinguishes from owner-occupied property. The production or supply of goods or services (or the use of property for administrative purposes) generates cash flows that are attributable not only to property, but also to other assets used in the production or supply process. Ind AS 16 applies to owner-occupied prope .....

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sed out under one or more operating leases. (d) a building that is vacant but is held to be leased out under one or more operating leases. (e) property that is being constructed or developed for future use as . 9 The following are examples of items that are not and are therefore outside the scope of this Standard: (a) property intended for sale in the ordinary course of business or in the process of construction or development for such sale (see Ind AS 2, Inventories), for example, property acqu .....

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is leased to another entity under a finance lease. 10 Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portions could not be sold separately, the property is only if an insignificant por .....

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ple, if an entity owns and manages a hotel, services provided to guests are significant to the arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied property, rather than . 13 It may be difficult to determine whether ancillary services are so significant that a property does not qualify as . For example, the owner of a hotel sometimes transfers some responsibilities to third parties under a management contract. The terms of such contracts vary widely. At one end of the spec .....

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aragraphs 7-13. Paragraph 75(c) requires an entity to disclose these criteria when classification is difficult. 14A Judgement is also needed to determine whether the acquisition of is the acquisition of an asset or a group of assets or a business combination within the scope of Ind AS 103, Business Combinations. Reference should be made to Ind AS 103 to determine whether it is a business combination. The discussion in paragraphs 7-14 of this Standard relates to whether or not property is owner-o .....

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e consolidated financial statements, because the property is owner-occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is if it meets the definition in paragraph 5. Therefore, the lessor treats the property as in its individual financial statements. Recognition 16 shall be recognised as an asset when, and only when: (a) it is probable that the future economic benefits that are associated with the will flow to the entity; and (b) the .....

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s as incurred. Costs of day-today servicing are primarily the cost of labour and consumables, and may include the cost of minor parts. The purpose of these expenditures is often described as for the repairs and maintenance of the property. 19 Parts of investment properties may have been acquired through replacement. For example, the interior walls may be replacements of original walls. Under the recognition principle, an entity recognises in the carrying amount of an the cost of replacing part o .....

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for example, professional fees for legal services, property transfer taxes and other transaction costs. 22 [Refer Appendix 1] 23 The cost of an is not increased by: (a) start-up costs (unless they are necessary to bring the property to the condition necessary for it to be capable of operating in the manner intended by management), (b) operating losses incurred before the achieves the planned level of occupancy, or (c) abnormal amounts of wasted material, labour or other resources incurred in co .....

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mum lease payments. An equivalent amount shall be recognised as a liability in accordance with that same paragraph. 26 Any premium paid for a lease is treated as part of the minimum lease payments for this purpose, and is therefore included in the cost of the asset, but is excluded from the liability. If a property interest held under a lease is classified as , the item accounted for at fair value is that interest and not the underlying property. Guidance on measuring the fair value of a propert .....

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ence. The cost of such an is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up. 28 An entity determines whether an exchange transactio .....

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c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged. For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entity s operations affected by the transaction shall reflect post-tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations. 29 The fair value of an asset is reliably measurable if (a) the variability in t .....

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cy 30 An entity shall adopt as its accounting policy the cost model prescribed in paragraph 56 to all of its . 31 [Refer Appendix 1] 32 This Standard requires all entities to measure the fair value of , for the purpose of disclosure even though they are required to follow the cost model. An entity is encouraged, but not required, to measure the fair value of on the basis of a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experien .....

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, there is clear evidence when an entity first acquires an (or when an existing property first becomes after a change in use) that the variability in the range of reasonable fair value measurements will be so great, and the probabilities of the various outcomes so difficult to assess, that the usefulness of a single measure of fair value is negated. This may indicate that the fair value of the property will not be reliably measurable on a continuing basis (see paragraph 53). 49-52 [Refer Appendi .....

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t transactions, price quotations are not current or observed transaction prices indicate that the seller was forced to sell) and alternative reliable measurements of fair value (for example, based on discounted cash flow projections) are not available. If an entity determines that the fair value of an under construction is not reliably measurable but expects the fair value of the property to be reliably measurable when construction is complete, it shall measure the fair value of that either when .....

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that property. Once construction of that property is complete, it is presumed that fair value can be measured reliably. If this is not the case, in accordance with paragraph 53, the entity shall make the disclosures required by paragraphs 79(e)(i), (ii) and (iii). 53B The presumption that the fair value of under construction can be measured reliably can be rebutted only on initial recognition. An entity that has measured the fair value of an item of under construction may not conclude that the f .....

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ing properties for disclosure required by paragraph 79(e). 55 If an entity has previously measured the fair value of an , it shall continue to measure the fair value of that property until disposal (or until the property becomes owner-occupied property or the entity begins to develop the property for subsequent sale in the ordinary course of business) even if comparable market transactions become less frequent or market prices become less readily available. Cost model 56 After initial recognitio .....

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eld for sale) shall be measured in accordance with Ind AS 105. Transfers 8[57 An entity shall transfer a property to, or from, when, and only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of and there is evidence of the change in use. In isolation, a change in management s intentions for the use of a property does not provide evidence of a change in use. Examples of evidence of a change in use include: (a) commencement of owner- .....

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it is derecognised (eliminated from the balance sheet) and does not reclassify it as inventory. Similarly, if an entity begins to redevelop an existing for continued future use as , the property remains an and is not reclassified as owner-occupied property during the redevelopment.] 59 Transfers between , owner-occupied property and inventories do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes. 6 .....

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applies to a disposal effected by entering into a finance lease and to a sale and leaseback.] 68 If, in accordance with the recognition principle in paragraph 16, an entity recognises in the carrying amount of an asset the cost of a replacement for part of an , it derecognises the carrying amount of the replaced part. A replaced part may not be a part that was depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost .....

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ain or loss arising from the derecognition of an is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115.] 71 An entity applies Ind AS 37 or other Standards, as appropriate, to any liabilities that it retains after disposal of an .....

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sed in accordance with paragraphs 66-71 of this Standard; (c) compensation from third parties for that was impaired, lost or given up is recognised in profit or loss when it becomes receivable; and (d) the cost of assets restored, purchased or constructed as replacements is determined in accordance with paragraphs 20-29 of this Standard. Disclosure 74 The disclosures below apply in addition to those in Ind AS 17. In accordance with Ind AS 17, the owner of an provides lessors disclosures about le .....

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r Appendix 1] (e) the extent to which the fair value of (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the being valued. If there has been no such valuation, that fact shall be disclosed. (f) the amounts recognised in profit or loss for: (i) rental income from ; (ii) direct operating expenses (including repairs and maint .....

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ion to the disclosures required by paragraph 75, an entity shall disclose: (a) the depreciation methods used; (b) the useful lives or the depreciation rates used; (c) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; (d) a reconciliation of the carrying amount of at the beginning and end of the period, showing the following: (i) additions, disclosing separately those additions resulting from acquisit .....

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ising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity; (vii) transfers to and from inventories and owner-occupied property; and (viii) other changes. (e) the fair value of . In the exceptional cases described in paragraph 53, when an entity cannot measure the fair value of the reliably, it shall disclose: (i) a description of the ; (ii) an explanation of why fai .....

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of initial application, an entity shall reassess the classification of property held at that date and, if applicable, reclassify property applying paragraphs 7-14 to reflect the conditions that exist at that date. 84D Notwithstanding the requirements in paragraph 84C, an entity is permitted to apply the amendments to paragraphs 57-58 retrospectively in accordance with Ind AS 8 if, and only if, that is possible without the use of hindsight. 84E If, in accordance with paragraph 84C, an entity recl .....

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nce of Ind AS 115, Revenue from Contracts with Customers, paragraphs 3(b), 9, 67and 70 are amended. An entity shall apply those amendments when it applies Ind AS 115. 85F * 85G Transfers of (Amendments to Ind AS 40), amended paragraphs 57-58 and added paragraphs 84C-84E. An entity shall apply those amendments for annual periods beginning on or after 1st April, 2018.] Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out .....

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in Ind AS 40. In order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40: (i) Paragraph 6 (ii) Paragraph 31 (iii) Paragraphs 32A-32C (iv) Paragraphs 33-35 (v) Paragraph 41 (vi) Paragraph 50 (vii) Paragraph 52 (viii) Paragraphs 60-65 (ix) Paragraph 75(b) (x) Paragraph 75(f)(iv) (xi) Paragraphs 76-78 13[(xii) Paragraphs 84E(i) - (ii)] 2 The transitional provisions given in IAS 40 have not been included in Ind AS 40 since all transitional pro .....

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e to use of cost model when fair value measurement is unreliable. 4 IAS 40 permits treatment of property interest held in an operating lease as , if the definition of is otherwise met and fair value model is applied. In such cases, the operating lease would be accounted as if it were a finance lease. Since Ind AS 40 prohibits the use of fair value model, this treatment is prohibited in Ind AS 40. As a result, paragraph 6 of IAS 40 has been deleted in Ind AS 40 (see point 1(i) above). In addition .....

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relating to fair value model), paragraph 68 (deletion of a portion dealing with fair value model), heading above paragraph 74 (deletion of the heading Fair value model and cost model ), 75(a) (disclosure of accounting policy) as compared to the wording used in IAS 40, heading above paragraph 76 (deletion of the heading Fair value model ), heading above paragraph 79 (deletion of the heading Cost model ) and paragraph 79 (deletion of the words that applies the cost model in paragraph 56 ). 6 Diffe .....

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agraphs 80 to 84A of IAS 40 which deals with the transitional provisions have not been included in Ind AS 40 as all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. Paragraphs 85 to 85D in IAS 40 have not been included in Ind AS 40 as these paragraphs relate to effective date which are not rele .....

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-2016 before it was read as, " (b) recognition of lease income from (see also Ind AS 115, Revenue from Contracts with Customers); " 2. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " (b) [Refer Appendix 1] " 3. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " 67 The disposal of an may be achieved by sale or by entering into a finance lease. The date of disposal for is the date the recipient .....

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ermining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115. " 5. Omitted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " (i) Paragraph 9(b) " 6. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, b .....

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, and only when, there is a change in use, evidenced by: (a) commencement of owner-occupation, for a transfer from to owner-occupied property; (b) commencement of development with a view to sale, for a transfer from to inventories; (c) end of owner-occupation, for a transfer from owner-occupied property to ; or (d) commencement of an operating lease to another party, for a transfer from inventories to . (e) [Refer Appendix 1] 9. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018 .....

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