Page 12 - 28. COMPILER QB - IND AS 8

QUESTIONS FROM PAST EXAM PAPERS

Q9 (December 21 – 5 Marks)

PQR Limited acquired a building for its administrative purposes and presented the same as property, plant and
equipment (PPE) in the financial year 2019-2020. During the financial year 2020-2021, it relocated the office
to a new building and leased the said building to a third party. Following the change in the usage of the
building, PQR Limited reclassified it from PPE to investment property in the financial year 2020-2021. Should

PQR Limited account for the change as a change in accounting policy?
SOLUTION
Ind AS 8 provides that the application of an accounting policy for transactions, other events, or conditions

that differ in substance from those previously occurring are no changes in accounting policies.
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, for rental to others, or for administrative
purposes; and

b) are expected to be used during more than one period.”

As per Ind AS 40, ―investment property‖ is property (land or a building—or part of a building—or both) held
(by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both,
rather than for:
a) use in the production or supply of goods or services or for administrative purposes; or

b) sale in the ordinary course of business.”
As per the above definitions, whether a building is an item of property, plant, and equipment (PPE) or an
investment property for an entity depends on the purpose for which it is held by the entity. It is thus possible
that due to a change in the purpose for which it is held, a building that was previously classified as an item
of property, plant, and equipment may warrant reclassification as an investment property or vice versa.

Whether a building is in the nature of PPE or investment property is determined by applying the definitions of
these terms from the perspective of that entity. Thus, the classification of a building as an item of property,
plant, and equipment or as an investment property is not a matter of an accounting policy choice.

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