Page 3 - 5. COMPILER QB - INDAS 40

The property would be measured under the cost model. This means it will be measured at Rs. 2,00,00,000 at
each year end.
On 30th September, 20X5, the property ceases to be an investment property. X Ltd. begins to develop it for

sale as flats.
As per Ind AS 40, transfers between investment property, 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. Hence, the carrying value of the reclassified property will be Rs.
2,00,00,000.

Since the lease of the property is an operating lease, rental income of Rs. 10,00,000 (Rs. 20,00,000 x 6/12)
would be recognised in P/L for the year ended 31st March, 20X6.
The additional costs of Rs. 60,00,000 for developing the flats which were incurred up to and including 31st
March, 20X6 would be added to the ‘cost’ of inventory to give a closing cost of Rs. 2,60,00,000.
The total selling price of the flats is expected to be Rs. 5,00,00,000 (10 x Rs. 50,00,000). Since the further

costs to develop the flats total Rs. 40,00,000, their net realizable value is Rs. 4,60,00,000 (Rs. 5,00,00,000 –
Rs. 40,00,000), so the flats will be measured at a cost of Rs. 2,60,00,000. (cost or NRV, whichever is lower)
The flats will be shown in inventory as a current asset.

Q2 (RTP - Nov. 20 & MTP March 21)

Shaurya Limited owns Building A which is specifically used for the purpose of earning rentals. The Company
has not been using the building A or any of its facilities for its own use for a long time. The company is also

exploring the opportunities to sell the building if it gets the reasonable amount in consideration.
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Following information is relevant for Building A for the year ending 31 March, 2020:
Building A was purchased 5 years ago at the cost of Rs.10 crore and building life is estimated to be 20 years.

The company follows a straight line method for depreciation.
During the year, the company has invested in another Building B with the purpose to hold it for capital
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appreciation. The property was purchased on 1 April, 2019 at the cost of Rs. 2 crore. Expected life of the

building is 40 years. As usual, the company follows a straight line method of depreciation.
Further, during the year 2019-2020, the company earned / incurred following direct operating expenditure
relating to Building A and Building B:
Rental income from Building A Rs. 75 lakh
Rental income from Building B Rs. 25 lakh

Sales promotion expenses Rs. 5 lakh
Fees & Taxes Rs. 1 lakh

Ground rent Rs. 2.5 lakh
Repairs & Maintenance Rs. 1.5 lakh
Legal & Professional Rs. 2 lakh

Commission and brokerage Rs. 1 lakh
The company does not have any restrictions and contractual obligations against buildings - A and B. For
complying with the requirements of Ind AS, the management sought an independent report from the

specialists so as to ascertain the fair value of buildings A and B. The independent valuer has valued the fair
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