Page 10 - 5. COMPILER QB - INDAS 40

Since equal value can be attributed to each floor, Ground Floor of the building will be considered as
Investment Property and accounted as per Ind AS 40 and First Floor would be considered as Property, Plant
and Equipment and accounted as per Ind AS 16.

Cost of each floor = Rs.63,40,000 / 2 =Rs. 31,70,000
As on 1st October 2019, the carrying value of building vis-à-vis its classification would be as follows:
(i) In Separate Financial Statements: The Ground Floor of the building will be classified as investment
property for Rs. 31,70,000, as it is property held to earn rentals. The First Floor of the building will be
classified as an item of property, plant and equipment for Rs. 31,70,000.

(ii) In Consolidated Financial Statements: The consolidated financial statements present the parent and its
subsidiary as a single entity. The consolidated entity uses the building for the supply of goods. Therefore,
the leased-out property to a subsidiary does not qualify as investment property in the consolidated
financial statements. Hence, the whole building will be classified as an item of Property, Plant and
Equipment for Rs. 63,40,000.

Q6 (May 18 & July 21 – 8 Marks)

Special Limited is a multinational entity that owns 3 properties. All 3 properties were purchased on 1st 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
Fair value as on 31st 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. Until the time it is not sold, the Company

has rented the property.
It has adopted a revaluation model for subsequent measurement of these properties. The depreciation is
charged on a straight line method. However, the Company has not charged any depreciation on Property 1
and Property 3 for 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
the year ended 31st March 2021.

SOLUTION
1. Property ‘1’ and ‘2’

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.

5. 9