Page 11 - 5. COMPILER QB - INDAS 40

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
the profit and loss statement.
2. Property ‘3’

As per Ind AS 40, Investment property is property held to earn rentals or for capital appreciation or both,
rather than for:
- Use in the production of goods or services or for administrative purposes; or
- Sale in the ordinary course of business.
Therefore, property 3 is an investment property and the company shall follow a cost model for its

subsequent measurement.

Accounting Principles:
- An entity shall adopt as its accounting policy the cost model to all of its investment property; and
- requires that an entity shall disclose the fair value of investment property.

Further, Ind AS 1 ‘Presentation of Financial Statements’ requires that as a minimum, the balance sheet
shall include line items that present the following amounts:
a. Property, Plant and Equipment
b. Investment Property.

Analysis:
As per the facts given in the question, Special Ltd. has
a. Presented all three properties in balance sheet as ‘property, plant and equipment’;
b. Not charged depreciation to Property ‘1’ and ‘3’;
c. Upward revaluation is recognised in the statement of profit and loss as profit; and

d. Applied revaluation model to Property ‘3’ being classified as Investment Property.

With respect to the accounting principles, the accounting treatment by Special Ltd. is not correct.
Accordingly, Special Ltd. shall depreciate Property 1 irrespective of the fact that their fair value exceeds
the carrying amount.

● The revaluation gain shall be recognised in other comprehensive income and accumulated in equity
under the heading of revaluation surplus.
● There is no alternative of revaluation model in respect to property ‘3’ being classified as Investment
Property and only cost model is permitted for subsequent measurement.
● However, Special Ltd. is required to disclose the fair value of the property in the Notes to Accounts.
● Further, Property ‘3’ shall be presented as a separate line item as Investment Property and

depreciation should be charged on it as well.
Therefore, as per the provisions of Ind AS 1, Ind AS 16 and Ind AS 40, the presentation of these three
properties in the balance sheet will be as follows:
5. 10