Ind AS 40 – Investment Property

If an enterprise is engaged in deriving the lease income as its operating income, the property shall be classified as PPE.

If an enterprise deriving capital appreciation or lease revenue in any other instances, then such asset shall be classified as Investment property.

Investment Property:

Includes –

· Property of land or building or part thereof or combination of both.

· Can be owned by the enterprise or held by lessee under finance lease.

· Held for rent or capital appreciation or both.

Excludes –

· Biological assets related to agricultural activity under Ind AS 41.

· Mineral rights under Ind AS 106.

Owner occupied property:

Owner-occupied property is property held by the owner or by the lessee as a right-of-use asset for use in production of supply of goods or services or for administrative purposes.

Classification of property as investment property or owner-occupied property:

An investment property is held to earn rentals or for capital appreciation, therefore an investment property generates cash flows largely independent of the other assets held by an entity, unlike PPE.

Examples of Investment Property

1. Land held for long-term capital appreciation rather than short term sale in the ordinary course of business.

2. Land held for a currently undetermined future use.

3. A building owned by the entity, or a right-of-use asset relating to a building held by the entity and leased out under one or more operating leases.

4. Property that is being constructed or developed for future use as investment property.

5. A building that is vacant but is held to be leased out under one or more operating leases.

Examples of items which are not investment property:

1. Property intended for sale in the normal course of business or in the process of construction.

2. Owner occupied property.

3. Property leased to another entity under a finance lease.


An investment property shall be recognized as an asset when and only when:

· It is probable that future economic benefits will flow to the entity and

· The cost of the investment property can be measured reliably.

An investment property held by a lessee as a right-of-use asset shall be recognized in accordance with Ind AS 116.

This general principle is used to consider whether the initial capitalization is appropriate in both cases of cost incurred initially to acquire or construct an investment property.

Day-to-day servicing costs

Costs of day-to-day servicing are primarily the cost of labor, consumables and may include the cost of minor parts. These costs are recognized in the profit and loss as expenses incurred.

Replacement costs

An entity can recognizes cost incurred to replace the parts of original property in the carrying amount of the investment property of if they meet the recognition criteria and the carrying amount of the replaced parts is derecognized in accordance with provisions of this Standard.

Measurement at recognition

Cost inclusions

The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure.

Cost exclusions

The cost is not increased by –

1. Start-up costs;

2. operating costs incurred before the property achieved the planned level of occupancy;

3. abnormal amounts of wasted material, labour or other resources incurred in constructing the property.

Deferred payments

If payment for an investment property is deferred, its cost is the cash price equivalent.

The difference between the amount and the total payments is recognized as interest expense over the period of credit.

Investment property acquired through exchange of another asset

If the exchange transaction has commercial substance or the fair value is reliably measurable –

An investment property is measured at the fair value of the property whose value is more clearly evident.

Or the investment property is measured at the carrying amount of the property given up.

The commercial substance is determined based on the extent to which the future cash flows are expected to change as a result of the transaction.

Measurement after recognition

After initial recognition, an entity shall measure the investment property –

1. If it is held as assets held for sale, as per Ind AS 105

2. If it is held by a lessee as a right-of-use asset and not held for sale, as per Ind AS 116

3. In all other cases, in accordance with Ind AS 16 for cost model.

Entities are required to measure the fair value of investment property, for the purpose of disclosure even though they are required to follow the cost model.

An entity should ensure that the fair value reflects the rental income from current leases and other assumptions that the market participants would use when pricing investment property under current market conditions.

When the fair value of an investment property is not reliably measurable –

If the investment property is under construction, the fair value of such investment property shall be the value when it becomes reliably measurable or construction is completed.

In case of property other than investment property under construction, the entity shall disclose the following –

  • A description of the investment property,
  • Explanation of why fair value cannot be reliably measured,
  • If possible, the range of estimates within which fair value is likely to lie.


An entity shall transfer a property to or from investment property when and only when there is a change is use.

A change in use occurs when the property meets or ceases to meet the definition of investment property and there is evidence of the change in use.

A change in management’s intentions for the use of a property does not provide evidence of a change in use.

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 the property for measurement or disclosure purposes.


An investment property should be derecognized –

  • On disposal or
  • When the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.

The disposal of an investment property is achieved by –

  • Sale or
  • Entering into a finance lease

Date of disposal in case of sale is the date at which the recipient obtains control of the property.

Ind AS 116 is applicable in case of disposal effected by entering into a finance lease.

The replaced part which has been added to the carrying amount of the property shall be derecognized and the part shall not be a part that depreciates separately.

The cost of the replacement shall be considered to calculate the cost of the replaced item at the time of acquisition.

The consideration receivable on disposal of an investment property is recognized initially at its fair value.

If the payment is deferred, the cash price equivalent shall be recognized initially and the difference shall be recognized as interest revenue.

The gains or losses from the disposal is the difference between the net disposals and the carrying amount of the asset and shall be recognized in profit or loss.

The amount of consideration shall be determined in accordance with the requirements of determining the transaction price as per Ind AS 115.

In case of finance lease or sale and leaseback, Ind AS 116 shall be applicable.


An entity should disclose –

  • Its accounting policy for measurement
  • The criteria used to distinguish investment property from owner-occupied property and assets held for sale in the normal course of business.
  • The extent to which the fair value of the property is based on a valuation by an independent valuer. If there has been no such valuation, that fact shall be disclosed.
  • The amount recognized in profit or loss for –
    • Rental Income
    • Direct operating expenses arising from investment property that generated rental income during the period and of properties which did not generate rental income during the period.
  • The existence and amount of restrictions on the realizability of investment property or the remittance of income.
  • In addition to the general disclosures, an entity is required to disclose –
    • The depreciation methods used
    • The useful life or the depreciation rates used
    • The gross carrying amount and the accumulated depreciation at the beginning and end of the period
  • An entity is required to provide a reconciliation at the beginning and end of the period showing the following –
    • Additions during the period
    • Depreciation
    • Amount of impairment losses recognized and reversed
    • Transfers to and from inventories and owner-occupied property
    • Net exchange difference arising on the translation of a foreign entity operation into the presentation currency of the reporting entity.
  • An entity is required to disclose the fair value of investment property. In the exceptional cases, when an entity cannot measure the fair value of the investment property reliably, it shall disclose:
    • a description of the investment property,
    • an explanation of why fair value cannot be measured reliably; and
    • if possible, the range of estimates within which fair value is highly likely to lie.


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