Ind AS 16 Vs Ind AS 40

                         Ind AS 40 Vs. Ind AS 16


What is the criteria for recognition of Asset ?

An item is recognized as an asset either PPE/Investment property only if the following conditions are satisfied.
  • it is probable that future economic benefits associated with the item will flow to the entity; and
  • the cost of the item can be measured reliably.
What is Investment property (Ind AS 40) ?

It is a land and/or building, or part of a building, or both, held by the owner or the lessee under a finance lease to earn rentals and/or for capital appreciation, rather than for use in production or supply of goods and services or use in administrative purposes or sale in the ordinary course of business.

we have to be careful in recognition of land and/or building under Property,Plant & Equipment (Ind AS 16) or Investment Property (Ind AS 40).

When can  land & building recognized under Ind AS 40?

If the land & building are utilized to generate revenue in the form of lease rentals or capital appreciation ( to sell at a higher value) then it is classified under Ind AS 40.

Example: A company purchased 100 acres land. The company constructed buildings on the land and given for lease. Now whether the company should disclose the land & building under PPE or Investment Property ?  

In this case, the land and building are used to generate rental income which satisfies the definition of investment property. Hence it is classified under Ind AS 40 "Investment Property".

Suppose if the same building used for manufacturing a product, it should be classified under Ind AS 16 "Property, Plant & Equipment" since there is no rental income from such asset.





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