Ind AS 40
Active
Investment Property
Prescribes the recognition and measurement of investment property, converged with IAS 40 but with a major measurement divergence: the cost model is mandatory and fair value cannot be used for balance sheet measurement.
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Conceptual Framework Linkage
Same rental/appreciation definition as IAS 40, narrower Indian measurement choice
Ind AS 40 shares IAS 40's core DEFINITION – investment property is land/buildings held to earn RENTAL income or for CAPITAL APPRECIATION, rather than for use in production/supply or sale in the ordinary course of business. Where Ind AS 40 genuinely diverges is SUBSEQUENT MEASUREMENT: IAS 40 offers a CHOICE between the cost model and the fair value model (with fair value changes through P&L); Ind AS 40 REMOVES this choice, mandating the COST MODEL only.
HOW IND AS 40 MAPS TO THE FRAMEWORK
Reliability over relevance trade-off – Indian standard-setters favoured the RELIABILITY of a cost-based measurement (avoiding potentially volatile or difficult-to-verify property valuations flowing through P&L) over the added relevance a fair value model might offer Consistency with Ind AS 16 – mandating the cost model for investment property aligns its measurement approach more closely with Ind AS 16's OWN predominant Indian practice (see Ind AS 16 poster) for owner-occupied property
This is one of the MOST significant, well-documented Ind AS divergences from its IFRS counterpart – comparable in weight to Ind AS 20's grant presentation divergence and Ind AS 1's format divergence.
Cost model vs fair value model – the core divergence
ModelIAS 40Ind AS 40
Cost modelAvailable (choice)MANDATORY
Fair value model (P&L)Available (choice)PROHIBITED for measurement
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Scope & Applicability
What Ind AS 40 covers
Ind AS 40 applies to recognition, measurement, and disclosure of investment property – IDENTICAL scope to IAS 40 in terms of WHAT qualifies, but with the MANDATORY cost model overlay on subsequent measurement.
Key definitions you must know
Investment property
IDENTICAL definition to IAS 40 – property held to earn rentals or for capital appreciation, or both.
Owner-occupied property
Property held for use in production/supply, or administrative purposes – SCOPED OUT of Ind AS 40, governed by Ind AS 16 instead, identical distinction to IAS 40.
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Identifying Investment Property
Identical to IAS 40
The KEY distinguishing factor is whether cash flows are LARGELY INDEPENDENT of other entity assets (investment property) versus generated jointly with other assets used in operations – IDENTICAL classification test to IAS 40.
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Initial Measurement – Cost
Identical to IAS 40
Purchase price plus directly attributable expenditure (legal fees, property transfer taxes, other transaction costs) – IDENTICAL initial measurement to IAS 40.
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Subsequent Measurement – The Mandatory Cost Model
The core divergence, illustrated
Example 1: Cost model vs fair value model comparison
An Indian real estate company holds a commercial building as investment property, purchased for ₹50,00,00,000 (with a 30-year useful life, no residual value), currently having a fair value of ₹75,00,00,000 after 5 years.
Under IAS 40's FAIR VALUE model (NOT available under Ind AS 40): the property would be carried at ₹75,00,00,000, with a ₹25,00,00,000 cumulative fair value GAIN recognised through P&L over the holding period.
Under Ind AS 40's MANDATORY COST MODEL: the property is carried at ₹50,00,00,000 less 5 years' accumulated depreciation (₹50,00,00,000 ÷ 30 × 5 = ₹8,33,33,333), i.e. approximately ₹41,66,66,667 – with NO fair value gain recognised in P&L, though the ₹75,00,00,000 fair value MUST still be DISCLOSED in the notes.
This illustrates a MATERIAL difference in both balance sheet carrying amount and P&L impact between the two frameworks.
Under Ind AS 40's MANDATORY COST MODEL: the property is carried at ₹50,00,00,000 less 5 years' accumulated depreciation (₹50,00,00,000 ÷ 30 × 5 = ₹8,33,33,333), i.e. approximately ₹41,66,66,667 – with NO fair value gain recognised in P&L, though the ₹75,00,00,000 fair value MUST still be DISCLOSED in the notes.
This illustrates a MATERIAL difference in both balance sheet carrying amount and P&L impact between the two frameworks.
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Mandatory Fair Value Disclosure
A partial preservation of IAS 40's fair value relevance
Even though the fair value MODEL is prohibited for measurement, Ind AS 40 STILL requires disclosure of investment property's FAIR VALUE in the notes – preserving SOME of the relevance IAS 40's fair value option would otherwise provide, without the P&L volatility of full fair value measurement.
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Why Ind AS 40 Prohibits the Fair Value Model – Indian Rationale
The standard-setting rationale behind this divergence
India's standard-setters (the ICAI/ASB, feeding into the MCA's Ind AS notification process) determined that RELIABLE, VERIFIABLE fair valuations for real estate are NOT consistently available across India's diverse property markets (particularly outside major metros), and that introducing FAIR VALUE VOLATILITY into P&L for investment property could distort reported profits in ways not reflective of genuine operating performance – a POLICY judgement resulting in the mandatory cost model, distinct from IAS 40's own global flexibility.
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Transfers To/From Investment Property
Identical to IAS 40 (as applied under the cost model)
Transfers to/from investment property occur when there is a CHANGE IN USE – since Ind AS 40 uses ONLY the cost model, transfers are recorded at the asset's EXISTING carrying amount (no fair value remeasurement gain/loss arises on transfer, unlike under IAS 40's fair value model option).
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Disclosure Requirements
Identical core disclosures to IAS 40, plus mandatory fair value note
Depreciation method and useful lives used Gross carrying amount and accumulated depreciation reconciliation FAIR VALUE of investment property, even though cost model is used for measurement
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Classifying a property as investment property vs owner-occupied vs inventory (Ind AS 2) Change-in-use determination triggering transfers
SIGNIFICANT ESTIMATES
Fair value for MANDATORY disclosure purposes (even though not used for measurement) Useful life and residual value for depreciation
Users comparing an Indian Ind AS 40 preparer against a GLOBAL IFRS peer using the fair value model should be AWARE that reported carrying amounts and P&L volatility from investment property can differ MATERIALLY, even where the underlying properties are economically comparable.
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Ind AS 40 vs IAS 40 – Full Comparison
Comprehensive comparison table
FeatureIAS 40Ind AS 40
Definition, initial measurement, transfersStandard modelIDENTICAL – no substantive divergence
Subsequent measurementCHOICE: cost model OR fair value model (P&L)COST MODEL ONLY – fair value model PROHIBITED for measurement
Fair value disclosureRequired if cost model chosenALWAYS required, regardless (mandatory disclosure-only fair value)
Ind AS 40's subsequent measurement is a MAJOR, well-documented divergence from IAS 40 – one of the most significant in the entire Ind AS suite, comparable in weight to Ind AS 20's grant presentation divergence and Ind AS 1's format divergence.
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Statement Mapping
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Investment property acquisitionBalance SheetAt cost, identical to IAS 40's initial measurement
Depreciation expenseP&L Balance SheetMANDATORY under Ind AS 40's cost model – NOT applicable under IAS 40's fair value model
Fair value changeNotes onlyDisclosed, NEVER recognised in P&L under Ind AS 40
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Related Standards
Cross-reference map
StandardConnection
IAS 40The global counterpart standard, diverging significantly on subsequent measurement
Ind AS 16Governs owner-occupied property, and supplies the cost/depreciation mechanics Ind AS 40 mirrors
Ind AS 113Supplies the fair value measurement principles used for the mandatory disclosure-only fair value figure
Quick-reference glossary
Fair value model
The IAS 40 alternative (fair value changes through P&L) that Ind AS 40 does NOT permit for measurement.
Disclosure-only fair value
The fair value Ind AS 40 mandates disclosing in the notes, despite prohibiting its use for balance sheet measurement.
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Glossary
Fair value model
The IAS 40 alternative (fair value changes through P&L) that Ind AS 40 does NOT permit for measurement.
Disclosure-only fair value
The fair value Ind AS 40 mandates disclosing in the notes, despite prohibiting its use for balance sheet measurement.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows