Page 13 - 5. COMPILER QB - INDAS 40

NEWLY ADDED QUESTIONS FROM ICAI MODULE

Q7 (ICAI MODULE) - Same as Q.3

X Ltd owned a land property whose future use was not determined as at 31 March 20X1. How should the
property be classified in the books of X Ltd as at 31 March 20X1?

During June 20X1, X Ltd commenced construction of office building on it for own use. Presuming that the
construction of the office building will still be in progress as at 31 March 20X2
a) How should the land property be classified by X Ltd in its financial statements as at 31 March 20X2?
b) Will there be a change in the carrying amount of the property resulting from any change in use of the

investment property?
c) Whether the change in classification to, or from, investment properties is a change in accounting policy to
be accounted for in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and
Errors?
d) Would your answer to (a) above be different if there were to be a management intention to commence

construction of an office building for own use; however, no construction activity was planned by 31 March
20X2?

SOLUTION
As per paragraph 8(b) of Ind AS 40, any land held for currently undetermined future use, should be classified
as an investment property. Hence, in this case, the land would be regarded as held for capital appreciation.

Hence the land property should be classified by X Ltd as investment property in the financial statements as
at 31 March 20X1.
As per Para 57 of the Standard, an entity can change the classification of any property to, and from, an
investment property when and only when evidenced by a change in use. A change occurs when the property

meets or ceases to meet the definition of investment property and there is evidence of the change in use.
Mere management’s intention for use of the property does not provide evidence of a change in use.
a) Since X Ltd has commenced construction of office building on it for own use, the property should be
reclassified from investment property to owner occupied as at 31 March 20X2.
b) As per Para 59, transfers between investment property, owner occupied and inventories do not change the
carrying amount of the property transferred and they do not change the cost of the property for

measurement or disclosure purposes.
c) No. The change in classification to, or from, investment properties is due to change in use of the property.
No retrospective application is required and prior period’s financial statements need not be re-stated.
d) Mere management intentions for use of the property do not evidence change in use. Since X Ltd has no

plans to commence construction of the office building during 20X1-20X2, the property should continue to
be classified as an investment property by X Ltd. in its financial statements as at 31 March 20X2.

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