Page 25 - 3. COMPILER QB - INDAS 16

Q18. (July. 21 - 8 Marks) – Mix of IndAS 16 & IndAS 40

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Special Limited is a multinational entity that owns 3 properties. All 3 properties were purchased on 1 April,
2020. The following details were furnished:

Particulars Property 1 Property 2 Property 3
Purchase Price Rs. 7,50,000 Rs. 10,50,000 Rs. 12,00,000

Estimated life 10 years 15 years 15 years
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Fair value as on 31 March, 2021 Rs. 8,00,000 Rs. 9,50,000 Rs. 13,00,000

The Company uses Property 1 and Property 2 for its business purposes. The Company is exploring the
opportunity to sell Property 3 if it gets reasonable consideration. Till the time it is not sold, the Company
has rented the property.

It has adopted revaluation model for subsequent measurement of these properties. The depreciation is charged
on straight line method. However, the Company has not charged any depreciation on Property 1 and Property
3 tor the current year since the fair value of properties exceeds their carrying amount. The difference
between their fair value and carrying amount has been recognized in the statement of profit and loss. The
properties are shown under the head property, plant and equipment in the Balance Sheet.
Analyze whether the accounting policies adopted by the Company in relation to the given properties are in

accordance with Ind AS. If not, advise the correct treatment and present an extract of the Balance Sheet for
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the year ended 31 March 2021.
SOLUTION

(a) Preamble:
The given issue needs to be examined in the umbrella of the provisions given in Ind AS 1 ―Presentation of

Financial Statements‖, Ind AS 16 ―Property, Plant and Equipment‖ in relation to property ―1‖ and ―2‖ and
Ind AS 40 ―Investment Property‖ in relation to property ―3‖.
Guidance given in relevant Ind AS:
1. Property ‘1’ and ‘2’
Definition and applicability:

As per Ind AS 16, Property plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services or for administrative purposes; and
(b) are expected to be used during more than one period.
Hence, property 1 and 2 are held for use in the business, therefore Ind AS 16 shall apply in respect of

these two properties.

Accounting Principles:

- If an asset‖s carrying amount is increased as a result of a revaluation, the increase shall be recognised
in other comprehensive income and accumulated in equity under the heading of revaluation surplus.
However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation
decrease of the same asset previously recognised in profit or loss.

If an asset‖s carrying amount is decreased as a result of revaluation, the decrease shall be recognised in
profit and loss statement.

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