Page 12 - 35. FR APRIL 22 MTP QP ANSWERS

3 6,20,857 37,251 1,00,000 5,58,108

4 5,58,108 33,486 1,00,000 4,91,594
5 4,91,594 29,496 1,00,000 4,21,090
6 4,21,090 25,265 1,00,000 3,46,355
Lease liability as at modification date 3,46,355

4. Adjustment to ROU asset
Modified Lease liability 5,97,100

Original Lease liability as at modification date (3,46,355)
Adjustment to ROU asset 2,50,745
The ROU asset will be increased by ` 2,50,745 on the date of modification.

Solution 2

(a) In accordance with Ind AS 16, all costs required to bring an asset to its present location and condition
for its intended use should be capitalised. Therefore, the initial purchase price of the building would be:
Particulars (`)

Purchase amount 50,00,000
Non-refundable property tax 2,50,000
Direct legal cost 50,000

53,00,000
Expenditures on redevelopment:
Building plan approval 1,00,000
Construction costs (10,00,000 – 60,000) 9,40,000
Total amount to be capitalised at 1st October, 20X1 63,40,000

Treatment of abnormal wastage of material and labour:
As per Ind AS 16, the cost of abnormal amounts of wasted material, labour, or other resources
incurred in self-constructing an asset is not included in the cost of the asset. It will be charged to
Profit and Loss in the year it is incurred. Hence, abnormal wastage of ` 40,000 will be expensed
off in Profit & Loss in the financial year 20X1-20X2.

Accounting of property- Building
When the property is used as an administrative centre, it is not an investment property, rather it is
an ‘owner occupied property’. Hence, Ind AS 16 will be applicable.
When the property (land and/or buildings) is held to earn rentals or for capital appreciation (or
both), it is an Investment Property. Ind AS 40 prescribes the cost model for accounting of such
investment property.

Since equal value can be attributed to each floor, Ground Floor of the building will be considered as
Investment Property and accounted for as per Ind AS 40 and First Floor would be considered as
Property, Plant and Equipment and accounted for as per Ind AS 16.
Cost of each floor = ` 63,40,000 / 2 = ` 31,70,000

As on 1st October, 20X1, the carrying value of building vis-à-vis its classification would be as follows:
(i) In the Separate Financial Statements: The Ground Floor of the building will be classified as investment
property for ` 31,70,000, as it is property held to earn rentals. While First Floor of the building will be

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