Special Limited is a multinational entity that owns 3 properties. All 3 properties were purchased on 1st April, 20X0. The following details were…

(a) 1. Property '1' and '2' Definition and applicability: As per Ind AS 16, Property plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services or for administrative purposes; and (b) are expected to be used during more than one period. Hence, property 1 and 2 are held for use in the business, therefore Ind AS 16 shall apply in respect of these two properties. Accounting Principles: If an asset's carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.If an asset's carrying amount is decreased as a result of revaluation, the decrease shall be recognised in profit and loss statement. 2. Property '3' Definition and applicability: As per Ind AS 40, Investment property is property held to earn rentals or for capital appreciation or both, rather than for: Use in the production of goods or services or for administrative purposes; orSale in the ordinary course of business. Therefore, property 3 is an investment property and company shall follow cost model for its subsequent measurement. Accounting Principles: An entity shall adopt as its accounting policy the cost model to all of its investment property; and (Refer paragraph 30 of Ind AS 40)requires that an entity shall disclose the fair value of investment property. (Refer paragraph 79 (e) of Ind AS 40 Further, paragraph 54 (2) of Ind AS 1 ‘Presentation of Financial Statements' requires that as a minimum, the balance sheet shall include line items that present the following amounts: a. Property, Plant and Equipment b. Investment Property. Analysis: As per the facts given in the question, Special Ltd. has a. Presented all three properties in balance sheet as 'property, plant and equipment'; b. Not charged depreciation to Property '1' and '3'; c. Upward revaluation is recognised in the statement of profit and loss as profit; and d. Applied revaluation model to Property '3' being classified as Investment Property. The above accounting treatment is neither correct nor in accordance with provision of Ind AS 1, Ind AS 16 and Ind AS 40. Accordingly, Special Ltd. shall depreciate Property 1 irrespective of the fact that, their fair value exceeds the carrying amount. The revaluation gain shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. There is no alternative of revaluation model in respect to property '3' being classified as Investment Property and only cost model is permitted for subsequent measurement. However, Special Ltd. is required to disclose the fair value of the property in the Notes to Accounts. Further, Property ‘3’' shall be presented as separate line item as Investment Property and depreciation should be charged on it as well. Therefore, as per the provisions of Ind AS 1, Ind AS 16 and Ind AS 40, the presentation of these three properties in the balance sheet will be as follows: Balance Sheet (extracts) as at 31st March, 20X1 Assets ₹ Non-Current Assets Property, Plant and Equipment Property '1' 8,00,000 Property '2' 9,50,000 17,50,000 Investment Properties Property ‘3' (1,200,000 – 80,000) 11,20,000 Equity and Liabilities Other Equity Revaluation Reserve Property '1' [8,00,000 – (7,50,000 – 75,000)] 1,25,000 The revaluation reserve should be routed through Other Comprehensive Income (subsequently not reclassified to Profit and Loss) and shown in a separate column under Statement of Changes in Equity. Working Notes: Particulars Property 1 Property 2 Property 3 Purchase Price 7,50,000 10,50,000 12,00,000 Estimated Life 10 years 15 years 15 years Depreciation for the year 75,000 70,000 80,000 Carrying Value as on 31st March, 20X1 6,75,000 9,80,000 11,20,000 Fair Value as on 31st March, 20X1 8,00,000 9,50,000 13,00,000 Subsequent Measurement Fair Value Fair Value Cost Revaluation Surplus/(Deficit) 1,25,000 (30, 000)