Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IAS 40 - Investment Property

Indian equivalent: Ind AS 40 - Investment Property

Objective and scope

IAS 40 covers land or buildings held to earn rentals or for capital appreciation, rather than for own use or for sale in the ordinary course of business - and permits an optional fair value model where changes go straight to profit.

Core principle

A building you use as your office follows IAS 16. A building you hold purely to earn rent or gain value follows IAS 40 - and here you may carry it at current market value, with gains and losses hitting profit each year (no depreciation).

Defined terms and technical terminology

Term	Technical meaning
Investment property	Property (land/building) held to earn rentals or for capital appreciation, not for own use or sale.
Owner-occupied property	Property used by the entity itself - accounted under IAS 16, not IAS 40.
Fair value model	Carry the property at current market value, remeasured yearly, with gains/losses in profit; no depreciation.
Cost model	Carry at cost less depreciation and impairment (as under IAS 16).

Application and worked illustrations

Drawing the line by purpose

The key is why you hold the property. A head office you occupy = owner-occupied → IAS 16. A block of flats you rent to tenants = investment property → IAS 40. A property a developer holds to sell = inventory → IAS 2. Same bricks, different standard, depending on intended use. A property with mixed use is split if the portions could be sold separately; otherwise it's investment property only if the owner-occupied part is insignificant.

Worked example - the fair value model

RentCo buys an office block as an investment for ₹5 crore and chooses the fair value model. A year later the market values it at ₹5.6 crore. RentCo remeasures to ₹5.6 crore and books the ₹60 lakh gain in profit or loss - with no depreciation charged. Had it fallen to ₹4.8 crore, a ₹20 lakh loss would hit profit. This is very different from IAS 16, where uplifts go to a revaluation surplus in equity, not profit.

Journal entry - Fair value gain on investment property
Account	Debit (₹)	Credit (₹)
Investment property (asset)	60,00,000
Fair value gain (P&L)		60,00,000

Common mistake: classifying property leased to another group company as investment property in the consolidated accounts. From the group's perspective it is owner-occupied → IAS 16 (though it may be investment property in the individual entity's own accounts).

IND AS LINK

This is a major India carve-out. Ind AS 40 permits only the cost model - the fair value model is NOT allowed in India (fair value is only disclosed in the notes). So an Indian company must depreciate its investment property, unlike under full IFRS.

Further worked illustrations

Extra numeric example - transfer from owner-occupied to investment property

A company vacates its own office (owner-occupied, IAS 16, carrying amount ₹4 crore) and starts renting it out - it becomes investment property. Under the cost model the transfer is at carrying amount. Under the fair value model (full IFRS), any difference between carrying amount and fair value at the transfer date is treated like a revaluation under IAS 16 up to that date, then fair-value rules apply thereafter.

INDIAN REGULATORY CONTEXT

This is one of the most important India differences. An Indian company with a large portfolio of rented commercial buildings must, under Ind AS 40, carry them at cost less depreciation and merely disclose fair value in the notes. A UK or Singapore peer using full IFRS could carry the same buildings at fair value with gains in profit - so the reported profit and net worth of otherwise-identical property companies can look very different by jurisdiction.

TECHNICAL EDGE CASE

A company owns a serviced office building where it also provides significant services (reception, security, catering) to tenants. If the services are a significant component of the arrangement, the property is treated as owner-occupied (IAS 16), not investment property - because the company is effectively running an operating business, not just holding a passive rental asset. A plain lease with minimal services stays as investment property.