Page 6 - 5. COMPILER QB - INDAS 40

SOLUTION

As per Ind AS 40, any land held for currently an 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 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 an office building on it for its own use, the property should

be reclassified from investment property to owner occupied as at 31 March 20X2.
(b) 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 restated.

(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.

5. 5