ASLB 16 Investment Property
Accounting Standard for Local Bodies (ASLB) 16
Investment Property
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2–6
DEFINITIONS 7–19
Investment Property 9–19
RECOGNITION 20–25
MEASUREMENT AT RECOGNITION 26–38
MEASUREMENT AFTER RECOGNITION 39–65
Accounting Policy 39-41
Fair Value Model 42–64
Inability to Determine Fair Value Reliably 62–64
Cost Model 65
TRANSFERS 66–76
DISPOSALS 77–84
DISCLOSURE 85–90
Fair Value Model and Cost Model 85-90
Fair Value Model 87-89
Cost Model 90
ILLUSTRATIVE DECISION TREE
APPENDIX 1 COMPARISON WITH IPSAS 16, ‘INVESTMENT PROPERTY’
Compendium of Accounting Standards for Local Bodies (ASLBs)
Accounting Standard for Local Bodies (ASLB) 16
Investment Property
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1)
The Accounting Standard for Local Bodies (ASLB) 16, ‘Investment Property’,
issued by the Council of the Institute of Chartered Accountants of India, will
be recommendatory in nature in the initial years for use by the local bodies.
This Standard will be mandatory for Local Bodies in a State from the date
specified in this regard by the State Government concerned 2.
The following is the text of the Accounting Standard for Local Bodies:
Objective
1. The objective of this Standard is to prescribe the accounting
treatment for investment property and related disclosure
requirements.
Scope
2. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for investment property.
3. This Standard applies to all entities that are described as the
Local Bodies in the Preface to Accounting Standards for Local
Bodies3.
4. [Deleted]
1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting
Standards for Local Bodies’, according to which Accounting Standards are intended
to apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference
may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’.
3 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies’.
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Investment Property
5. This Standard applies to accounting for investment property,
including the measurement in a lessor‟s financial statements of
investment property provided to a lessee under an operating lease.
This Standard does not deal with matters covered in ASLB 13,
„Leases’, including:
(a) Classification of leases as finance leases or operating
leases4;
(b) Recognition of lease revenue from investment property (see
also ASLB 9, „Revenue from Exchange Transactions’);
(c) Measurement in a lessee‟s financial statements of property
interests held under a lease accounted for as an operating
lease;
(d) [Refer to Appendix 1];
(e) Accounting for sale and leaseback transactions; and
(f) Disclosure about finance leases and operating leases.
6. This Standard does not apply to:
(a) Biological assets, i.e., living animals or plants, related to
agricultural activity ; and
(b) Mineral rights and mineral reserves such as oil, natural gas,
and similar non-regenerative resources.
Definitions
7. The following terms are used in this Standard with the meanings
specified:
Carrying amount (for the purpose of this Standard) is the amount
at which an asset is recognised in the balance sheet.
Cost is the amount of cash or cash equivalents paid or the fair
value of other consideration given to acquire an asset at the time
of its acquisition or construction.
4 As per ASLB 13, „Leases‟, all leases of land or/and buildings are to be treated as
operating leases.
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Investment property is property (land or a building – or part of a
building – or both) held to earn rentals or for capital appreciation
or both, rather than for:
(a) Use in the production or supply of goods or services, or
for administrative purposes; or
(b) Sale in the ordinary course of operations.
Owner-occupied property is property held (by the owner) for use
in the production or supply of goods or services, or for
administrative purposes.
Terms defined in other ASLBs are used in this Standard with the
same meaning as in those other Standards.
8. [Refer to Appendix 1]
Investment Property
9. In certain circumstances, local bodies may not hold the property with
the intention of earning rentals. For example, a local body has set up
a shopping complex in order to provide shops to the street hawkers at
a very nominal rent. Intention of the local body here appears to be
more of providing service to the weaker section of the society rat her
than earning rentals. Therefore, the said property may not be
classified as Investment Property but as an item of property governed
under ASLB 17, „Property, Plant and Equipment’. However, there may
be other circumstances in which the entities may hold property to
earn rental. For example, a local body may own a building for the
purpose of leasing on a commercial basis to external parties to
generate funds, rather than to provide social services. This property
would meet the definition of investment property. Similarly, in some
cases local bodies may intentionally take the benefit of capital
appreciation. For example, a Local Body auctioned a high-end
shopping mall for lease/rental and charged a lump sum amount which
is determined by market price. After the expiry of the lease term, the
auction is repeated. In this case, the local body gets the benefit of
capital appreciation. Therefore, such a property held by the entity,
other than property held for resale in the ordinary course of
operations, meets the definition of an investment property.
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Investment Property
10. Investment property is held to earn rentals or for capital appreciation,
or both. Therefore, investment property generates cash flows largely
independently of the other assets held by an entity. This distinguishes
investment property from other land or buildings controlled by
entities, including owner-occupied property. The production or supply
of goods or services (or the use of property for administrative
purposes) can also generate cash flows. For example, entities may
use a building to provide goods and services to recipients in return for
full or partial cost recovery. However, the building is held to facilitate
the supply or production of goods and services, and the cash flows
are attributable not only to the building, but also to other assets used
in the production or supply process. ASLB 17, „Property, Plant, and
Equipment’, applies to owner-occupied property.
11. In some cases, certain administrative arrangements exist such that
an entity may control an asset that may be legally owned by another
entity. For example, a local body may control and account for certain
buildings that are legally owned by the State. In such circumstances,
references to owner-occupied property means property occupied by
the entity that recognises the property in its financial statements.
12. The following are examples of investment property:
(a) Land held for long-term capital appreciation rather than for
short-term sale in the ordinary course of operations. For
example, land held by a municipal dispensary that may be
sold at a beneficial time in the future.
(b) Land held for a currently undetermined future use. (If an entity
has not determined that it will use the land as owner-occupied
property, including occupation to provide services such as
those provided by municipal parks to current and future
generations, or for rentals in the ordinary course of
operations, the land is regarded as held for earning rentals).
(c) A building owned by the entity and leased out under one or
more operating leases on a commercial basis. For example,
local bodies may own shopping malls that it leases on a
commercial basis to external parties.
(d) A building that is vacant but is held to be leased out under
one or more operating leases on a commercial basis to
external parties.
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(e) Property that is being constructed or developed for future use
as investment property.
13. The following are examples of items that are not investment property
and are therefore outside the scope of this Standard:
(a) Property held for sale in the ordinary course of operations or
in the process of construction or development for such sale
(see ASLB 12, „Inventories‟). For example, a local body may
routinely supplement rate income by buying and selling
property, in which case property held exclusively with a view
to subsequent disposal in the near future or for development
for resale is classified as inventory. A housing department
may routinely sell part of its housing stock in the ordinary
course of its operations as a result of changing demographics,
in which case any housing stock held for sale is classified as
inventory.
(b) Property being constructed or developed on behalf of another
governmental body. For example, a housing department may
enter into construction contracts with another governmental
body (see ASLB 11, „Construction Contracts‟).
(c) Owner-occupied property (see ASLB 17), including (among
other things) property held for future use as owner-occupied
property, property held for future development and
subsequent use as owner-occupied property, property
occupied by employees such as housing for local body‟s
personnel (whether or not the employees pay rent at market
rates) and owner-occupied property awaiting disposal.
(d) [Deleted]
(e) [Refer to Appendix 1]
(f) Property held to provide a social service and which also
generates cash inflows. For example, a housing department
may hold a large housing stock used to provide housing to
low income families at below market rental. In this situation,
the property is held to provide housing services rather than for
rentals or capital appreciation and rental revenue generated is
incidental to the purposes for which the property is held. Such
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property is not considered an „investment property‟ and would
be accounted for in accordance with ASLB 17.
(g) Property held for strategic purposes which would be
accounted for in accordance with ASLB 17.
14. In many cases, entities will hold property to meet service delivery
objectives rather than to earn rental or for capital appreciation. In
such situations, the property will not meet the definition of investment
property. However, where an entity does hold property to earn rental
or for capital appreciation, this Standard is applicable. In some cases,
entities hold some property that comprises (a) a portion that is held to
earn rentals or for capital appreciation rather than to provide services,
and (b) another portion that is held for use in the production or supply
of goods or services or for administrative purposes. For example, a
local body may own a building, part of which is used for
administrative purposes, and part of which is leased out on a
commercial basis. If these portions could be sold separately, an entity
accounts for the portions separately. If the portions could not be sold
separately, the property is investment property only if an insignificant
portion is held for use in the production or supply of goods or services
or for administrative purposes.
15. In some cases, an entity provides ancillary services to the occupants
of a property it holds. An entity treats such a property as investment
property if the services are insignificant to the arrangement as a
whole. An example is when a local body agency (a) owns an office
building that is held exclusively for rental purposes and rented on a
commercial basis, and (b) also provides security and maintenance
services to the lessees who occupy the building.
16. In other cases, the services provided are significant. For example, an
entity may own a guest house that it manages through its general
property management agency. The services provided to guests are
significant to the arrangement as a whole. Therefore, an owner-
managed guest house is owner-occupied property, rather than
investment property.
17. It may be difficult to determine whether ancillary services are so
significant that a property does not qualify as investment property.
For example, a local body or local body agency that is the owner of a
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guest house may transfer some responsibilities to third parties under
a management contract. The terms of such management contracts
vary widely. At one end of the spectrum, the local body‟s or local
body agency‟s position may, in substance, be that of a passive
investor. At the other end of the spectrum, the local body or local
body agency may simply have outsourced day-to-day functions, while
retaining significant exposure to variation in the cash flows generated
by the operations of the guest house.
18. Judgment is needed to determine whether a property qualifies as
investment property. An entity develops criteria so that it can exercise
that judgment consistently in accordance with the definition of
investment property, and with the related guidance in paragraphs 9 –
17. Paragraph 86(c) requires an entity to disclose these criteria when
classification is difficult.
18A. Judgement is also needed to determine whether the acquisition of
investment property is the acquisition of an asset or a group of assets
or an entity combination within the scope of ASLB 40, „Entity
Combinations5‟. Reference should be made to ASLB 40 to determine
whether it is an entity combination. The discussion in paragraphs 9 -
18 of this Standard relates to whether or not property is owner-
occupied property or investment property and not to determining
whether or not the acquisition of property is an entity combination as
defined in ASLB 40. Determining whether a specific transaction
meets the definition of an entity combination as defined in ASLB 40
and includes an investment property as defined in this Standard
requires the separate application of both Standards.
19. In some cases, an entity owns property that is leased to, and
occupied by, its controlling entity or another controlled entity. The
property does not qualify as investment property in consolidated
financial statements, because the property is owner-occupied from
the perspective of the economic entity. However, from the
perspective of the entity that owns it, the property is investment
property if it meets the definition in paragraph 7. Therefore, the lessor
treats the property as investment property in its individual financial
statements. This situation may arise where a local body establishes a
5 ASLB on this subject is yet to be formulated.
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property management entity to manage local body‟s office buildings.
The buildings are then leased out to other controlled entities on a
commercial basis. In the financial statements of the property
management entity, the property would be accounted for as
investment property. However, in the consolidated financial
statements of the local body, the property would be accounted for as
property, plant, and equipment in accordance with ASLB 17.
Recognition
20. Investment property should be recognised as an asset when,
and only when:
(a) It is probable that the future economic benefits or service
potential that are associated with the investment property
will flow to the entity; and
(b) The cost of the investment property can be measured
reliably6 except for an investment property acquired
through non-exchange transaction that is to be accounted
in accordance with paragraph 27.
21. In determining whether an item satisfies the first criterion for
recognition, an entity needs to assess the degree of certainty
attaching to the flow of future economic benefits or service potential
on the basis of the available evidence at the time of initial recognition.
Existence of sufficient certainty that the future economic benefits or
service potential will flow to the entity necessitates an assurance that
the entity will receive the rewards attaching to the asset, and will
undertake the associated risks. This assurance is usually only
available when the risks and rewards have passed to the entity.
Before this occurs, the transaction to acquire the asset can usually be
cancelled without significant penalty and, therefore, the asset is not
recognised.
22. The second criterion for recognition is usually readily satisfied
because the exchange transaction evidencing the purchase of the
asset identifies its cost. As specified in paragraph 27 of this Standard,
6 Information that is reliable is free from material errors and bias, and can be
depended on by users to faithfully represent that it purports to represent or could
reasonably be expected to represent.
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an investment property acquired through non-exchange transaction is
measured at nominal value of Re. 1/-.
23. An entity evaluates under this recognition principle all its investment
property costs at the time they are incurred to make it fit for use.
These costs include costs incurred initially to acquire an investment
property, and costs incurred subsequently to add to, replace part of,
or service a property.
24. Under the recognition principle in paragraph 20, an entity does not
recognise in the carrying amount of an investment property the costs
of the day-to-day servicing of such a property. Rather, these costs
are recognised in surplus or deficit as incurred. Costs of day-to-day
servicing of a property are primarily the costs of labour and
consumables, and may include the cost of minor parts. The purpose
of these expenditures is often described as for the repairs and
maintenance of the property.
25. Parts of investment property may have been acquired through
replacement. For example, the interior walls may be replacements of
original walls. Under the recognition principle, an entity recognises in
the carrying amount of an investment property the cost of replacing
part of an existing investment property at the time that cost is
incurred if the recognition criteria are met. The carrying amount of
those parts that are replaced is derecognised in accordance with the
derecognition provisions of this Standard.
Measurement at Recognition
26. Investment property should be measured initially at its cost
(transaction costs should be included in this initial
measurement).
27. Where an investment property is acquired through a non-
exchange transaction, its cost should be measured at its
nominal value7 of Re. 1/-..
28. The cost of a purchased investment property comprises its purchase
price and any directly attributable expenditure. Directly attributable
7 The corresponding credit head is to be determined as per the principles of the
ASLB 23 ‘Revenue from Non-exchange Transactions’.
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expenditure includes, for example, professional fees for legal
services, property transfer taxes, and other transaction costs.
29. [Deleted]
30. The cost of investment property is not increased by:
(a) Start-up costs (unless they are necessary to bring the
property to the condition necessary for it to be capable of
operating in the manner intended by management);
(b) Operating losses incurred before the investment property
achieves the planned level of occupancy; or
(c) Abnormal amounts of wasted material, labour or other
resources incurred in constructing or developing the property.
31. If payment for investment property is deferred, its cost is the cash
price equivalent. The difference between this amount and the total
payments is recognised as interest expense over the period of credit.
32. An investment property may be acquired through a non-exchange
transaction. For example, a local body may transfer at no charge a
surplus office building to another entity, which then lets it out at
market rent. An investment property may also be acquired through a
non-exchange transaction by the exercise of powers of sequestration.
In these circumstances, the property is measured in accordance with
paragraph 27.
33. Where an entity initially recognises its investment property in
accordance with paragraph 27, the entity should decide subsequent
to initial recognition to adopt either the fair value model (paragraphs
42-64) or continue to record the asset at nominal value of Re. 1/-.
34. [Refer to Appendix 1]
35. [Refer to Appendix 1]
36. One or more investment properties may be acquired in exchange for
a non-monetary asset or assets, or a combination of monetary and
non-monetary assets. The following discussion refers to an exchange
of one non-monetary asset for another, but it also applies to all
exchanges described in the preceding sentence. The cost of such an
investment property is measured at fair value unless (a) the
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exchange transaction lacks commercial substance or (b) the fair
value of neither the asset received nor the asset given up is reliably
measurable. The acquired asset is measured in this way even if an
entity cannot immediately derecognise the asset given up. If the
acquired asset is not measured at fair value, its cost is measured at
the carrying amount of the asset given up.
37. An entity determines whether an exchange transaction has
commercial substance by considering the extent to which its future
cash flows or service potential is expected to change as a result of
the transaction. An exchange transaction has commercial substance
if:
(a) The configuration (risk, timing, and amount) of the cash flows
or service potential of the asset received differs from the
configuration of the cash flows or service potential of the
asset transferred; or
(b) The entity-specific value of the portion of the entity‟s
operations affected by the transaction changes as a result of
the exchange; and
(c) The difference in (a) or (b) is significant relative to the fair
value of the assets exchanged.
For the purpose of determining whether an exchange transaction has
commercial substance, the entity-specific value of the portion of the
entity‟s operations affected by the transaction should reflect post-tax
cash flows, if tax applies. The result of these analyses may be clear
without an entity having to perform detailed calculations.
38. The fair value of an asset for which comparable market transactions
do not exist is reliably measurable if (a) the variability in the range of
reasonable fair value estimates is not significant for that asset or (b)
the probabilities of the various estimates within the range can be
reasonably assessed and used in estimating fair value. If the entity is
able to determine reliably the fair value of either the asset received or
the asset given up, then the fair value of the asset given up is used to
measure cost unless the fair value of the asset received is more
clearly evident.
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Measurement after Recognition
Accounting Policy
39. With the exception noted in paragraph 43, an entity should
choose as its accounting policy either the fair value model in
paragraphs 42-64 or the cost model prescribed in paragraph 65,
and should apply that policy to all of its investment property.
40. ASLB 3, „Accounting Policies, Changes in Accounting Estimates and
Errors‟ states that a voluntary change in accounting policy should be
made only if the change results in the financial statements providing
faithfully representative and more relevant information about the
effects of transactions, other events or conditions on the entity‟s
financial position, financial performance or cash flows. It is highly
unlikely that a change from the fair value model to the cost model will
result in a more relevant presentation.
41. This Standard requires all entities to determine the fair value of
investment property, for the purpose of measurement and disclosure
(if the entity uses the fair value model). An entity is encouraged, but
not required, to determine the fair value of investment property on the
basis of a valuation by an independent valuer who holds a recognised
and relevant professional qualification 8 and has recent experience in
the location and category of the investment property being valued.
Fair Value Model
42. After initial recognition, an entity that chooses the fair value
model should measure all of its investment property at fair value,
except in the cases described in paragraph 62.
43. [Refer to Appendix 1]
44. A gain or loss arising from a change in the fair value of
investment property should be recognised in surplus or deficit
for the period in which it arises.
45. The fair value of investment property is the price at which the
8 A valuer should be a person having such qualification, experience and registered
as a valuer in such manner as prescribed in the Companies Act, 2013 or any other
act/rules applicable to local bodies in India.
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property could be exchanged between knowledgeable, willing parties
in an arm‟s length transaction (see paragraph 7). Fair value
specifically excludes an estimated price inflated or deflated by special
terms or circumstances such as a typical financing, sale and
leaseback arrangements, special considerations or concessions
granted by anyone associated with the sale.
46. An entity determines fair value without any deduction for transaction
costs it may incur on sale or other disposal.
47. The fair value of investment property should reflect market
conditions at the reporting date.
48. Fair value is time-specific as of a given date. Because market
conditions may change, the amount reported as fair value may be
incorrect or inappropriate if estimated as of another time. The
definition of fair value also assumes simultaneous exchange and
completion of the contract for sale without any variation in price that
might be made in an arm‟s length transaction between
knowledgeable, willing parties if exchange and completion are not
simultaneous.
49. The fair value of investment property reflects, among other things,
rental revenue from current leases and reasonable and supportable
assumptions that represent what knowledgeable, willing parties would
assume about rental revenue from future leases in the light of current
conditions. It also reflects, on a similar basis, any cash outflows
(including rental payments and other outflows) that could be expected
in respect of the property. Some of those outflows are reflected in the
liability whereas others relate to outflows that are not recognised in
the financial statements until a later date (e.g. periodic payments
such as contingent rents).
50. [Refer to Appendix 1]
51. The definition of fair value refers to “knowledgeable, willing parties”.
In this context, “knowledgeable” means that both the willing buyer
and the willing seller are reasonably informed about the nature and
characteristics of the investment property, its actual and potential
uses, and market conditions at the reporting date. A willing buyer is
motivated, but not compelled, to buy. This buyer is neither over-eager
nor determined to buy at any price. The assumed buyer would not
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pay a higher price than a market comprising knowledgeable, willing
buyers and sellers would require.
52. A willing seller is neither an over-eager nor a forced seller, prepared
to sell at any price, nor one prepared to hold out for a price not
considered reasonable in current market conditions. The willing seller
is motivated to sell the investment property at market terms for the
best price obtainable. The factual circumstances of the actual
investment property owner are not a part of this consideration
because the willing seller is a hypothetical owner (e.g., a willing seller
would not take into account the particular tax circumstances of the
actual investment property owner).
53. The definition of fair value refers to an arm‟s length transaction. An
arm‟s length transaction is one between parties that do not have a
particular or special relationship that makes prices of transactions
uncharacteristic of market conditions. The transaction is presumed to
be between unrelated parties, each acting independently.
54. The best evidence of fair value is given by current prices in an active
market for similar property in the same location and condition and
subject to similar lease and other contracts. An entity takes care to
identify any differences in the nature, location, or condition of the
property, or in the contractual terms of the leases and other contracts
relating to the property.
55. In the absence of current prices in an active market of the kind
described in paragraph 54, an entity considers information from a
variety of sources, including:
(a) Current prices in an active market for properties of different
nature, condition, or location (or subject to different lease or
other contracts), adjusted to reflect those differences;
(b) Recent prices of similar properties on less active markets,
with adjustments to reflect any changes in economic
conditions since the date of the transactions that occurred at
those prices; and
(c) Discounted cash flow projections based on reliable estimates
of future cash flows, supported by the terms of any existing
lease and other contracts and (when possible) by external
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evidence, such as current market rents for similar properties
in the same location and condition, and using discount rates
that reflect current market assessments of the uncertainty in
the amount and timing of the cash flows.
(d) [Refer to Appendix 1]
56. In some cases, the various sources listed in the previous paragraph
may suggest different conclusions about the fair value of an
investment property. An entity considers the reasons for those
differences, in order to arrive at the most reliable estimate of fair
value within a range of reasonable fair value estimates.
57. In exceptional cases, there is clear evidence when an entity first
acquires an investment property (or when an existing property first
becomes an investment property after a change in use) that the
variability in the range of reasonable fair value estimates will be so
great, and the probabilities of the various outcomes so difficult to
assess, that the usefulness of a single estimate of fair value is
negated. This may indicate that the fair value of the property will not
be reliably determinable on a continuing basis (see paragraph 62).
58. Fair value differs from value in use, as defined in ASLB 21,
„Impairment of Non-Cash-Generating Assets‟ and ASLB 26,
„Impairment of Cash-Generating Assets‟. Fair value reflects the
knowledge and estimates of knowledgeable, willing buyers and
sellers. In contrast, value in use reflects the entity‟s estimates,
including the effects of factors that may be specific to the entity and
not applicable to entities in general. For example, fair value does not
reflect any of the following factors, to the extent that they would not
be generally available to knowledgeable, willing buyers and sellers:
(a) Additional value derived from the creation of a portfolio of
properties in different locations;
(b) Synergies between investment property and other assets;
(c) Legal rights or legal restrictions that are specific only to the
current owner; and
(d) Tax benefits or tax burdens that are specific to the current
owner.
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59. In determining the carrying amount of investment property under the
fair value model, an entity does not double-count assets or liabilities
that are recognised as separate assets or liabilities. For example:
(a) Equipment such as elevators or air-conditioning is often an
integral part of a building and is generally included in the fair
value of the investment property, rather than recognised
separately as property, plant, and equipment.
(b) If an office is leased on a furnished basis, the fair value of the
office generally includes the fair value of the furniture,
because the rental revenue relates to the furnished office.
When furniture is included in the fair value of investment
property, an entity does not recognise that furniture as a
separate asset.
(c) The fair value of investment property excludes prepaid or
accrued operating lease revenue, because the entity
recognises it as a separate liability or asset.
60. The fair value of investment property does not reflect future capital
expenditure that will improve or enhance the property and does not
reflect the related future benefits from this future expenditure.
61. In some cases, an entity expects that the present value of its
payments relating to an investment property (other than payments
relating to recognised liabilities) will exceed the present value of the
related cash receipts. An entity applies ASLB 19, „Provisions,
Contingent Liabilities and Contingent Assets‟ to determine whether to
recognise a liability and, if so, how to measure it.
Inability to determine Fair Value Reliably
62. There is a rebuttable presumption that an entity can reliably
determine the fair value of an investment property on a
continuing basis. However, in exceptional cases, there is clear
evidence when an entity first acquires an investment property
(or when an existing property first becomes investment property
after a change in use) that the fair value of the investment
property is not reliably determinable on a continuing basis. This
arises when, and only when, comparable market transactions are
infrequent and alternative reliable estimates of fair value (for
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example, based on discounted cash flow projections) are not
available. If an entity determines that the fair value of an
investment property under construction is not reliably
determinable but expects the fair value of the property to be
reliably measurable when construction is complete, it should
measure the fair value of that investment property either when
its fair value becomes reliably determinable or construction is
completed (whichever is earlier). If an entity determines that the
fair value of an investment property (other than an investment
property under construction) is not reliably determinable on a
continuing basis, the entity should measure that investment
property using the cost model in ASLB 17. The residual value of
the investment property should be assumed to be zero. The
entity should apply ASLB 17 until disposal of the investment
property.
62A. Once an entity becomes able to measure reliably the fair value of an
investment property under construction that has previously been
measured at cost, it should measure that property at its fair value.
Once construction of that property is complete, it is presumed that fair
value can be measured reliably. If this is not the case, in accordance
with paragraph 62, the property should be accounted for using the
cost model in accordance with ASLB 17.
62B. The presumption that the fair value of investment property under
construction can be measured reliably can be rebutted only on initial
recognition. An entity that has measured an item of investment
property under construction at fair value may not conclude that the
fair value of the completed investment property cannot be determined
reliably.
63. In the exceptional cases when an entity is compelled, for the reason
given in paragraph 62, to measure an investment property using the
cost model in accordance with ASLB 17, it measures at fair value all
its other investment property, including investment property under
construction. In these cases, although an entity may use the cost
model for one investment property, the entity should continue to
account for each of the remaining properties using the fair value
model.
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64. If an entity has previously measured an investment property at
fair value, it should continue to measure the property at fair
value until disposal (or until the property becomes owner-
occupied property or the entity begins to develop the property
for subsequent sale in the ordinary course of operations) even if
comparable market transactions become less frequent or market
prices become less readily available.
Cost Model
65. After initial recognition, an entity that chooses the cost model
should measure all of its investment property in accordance with
ASLB 17’s requirements for that model, i.e., at cost less any
accumulated depreciation and any accumulated impairment
losses.
Transfers
66. Transfers to or from investment property should be made when,
and only when, there is a change in use, evidenced by:
(a) Commencement of owner-occupation, for a transfer from
investment property to owner-occupied property;
(b) Commencement of development with a view to sale, for a
transfer from investment property to inventories;
(c) End of owner-occupation, for a transfer from owner-
occupied property to investment property; or
(d) Commencement of an operating lease (on a commercial
basis) to another party, for a transfer from inventories to
investment property.
(e) [Deleted]
67. A local body‟s use of property may change over time. For example, a
local body may decide to occupy a building currently used as an
investment property, or to convert a building currently used for
administrative purposes into a guest house and to let that building to
private sector operators. In the former case, the building would be
accounted for as an investment property until commencement of
occupation. In the latter case, the building would be accounted for as
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property, plant, and equipment until its occupation ceased and it is
reclassified as an investment property.
68. Paragraph 66(b) requires an entity to transfer a property from
investment property to inventories when, and only when, there is a
change in use, evidenced by commencement of development with a
view to sale. When an entity decides to dispose of an investment
property without development, it continues to treat the property as an
investment property until it is de-recognised (eliminated from the
balance sheet) and does not treat it as an inventory. Similarly, if an
entity begins to redevelop an existing investment property for
continued future use as investment property, the property remains an
investment property and is not reclassified as owner-occupied
property during the redevelopment.
69. A local body housing department may regularly review its buildings to
determine whether they are meeting its requirements, and as part of
that process may identify, and hold, certain buildings for sale. In this
situation, the building may be considered inventory. However, if the
local body decided to hold the building for its ability to generate rent
revenue and its capital appreciation potential, it would be reclassified
as an investment property on commencement of any subsequent
operating lease.
70. Paragraph 71-76 apply to when an entity uses recognition and
measurement issues that arise when an entity uses the fair value
model for investment property. When an entity uses the cost model,
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 that property for
measurement or disclosure purposes.
71. For a transfer from investment property carried at fair value to
owner-occupied property or inventories, the property’s cost for
subsequent accounting in accordance with ASLB 17 or ASLB 12,
should be its fair value at the date of change in use.
72. If an owner-occupied property becomes an investment property
that will be carried at fair value, an entity should apply ASLB 17
up to the date of change in use. The entity should treat any
difference at that date between the carrying amount of the
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property in accordance with ASLB 17, and its fair value in the
same way as a revaluation in accordance with ASLB 17.
73. Up to the date when an owner-occupied property becomes an
investment property carried at fair value, an entity depreciates the
property and recognises any impairment losses that have occurred.
The entity treats any difference at that date between the carrying
amount of the property in accordance with ASLB 17, and its fair value
in the same way as a revaluation in accordance with ASLB 17. In
other words:
(a) Any resulting decrease in the carrying amount of the property
is recognised in surplus or deficit. However, to the extent that
an amount is included in revaluation surplus for that property,
the decrease is charged against that revaluation surplus.
(b) Any resulting increase in the carrying amount is treated as
follows:
(i) To the extent that the increase reverses a previous
impairment loss for that property, the increase is
recognized in surplus or deficit. The amount
recognised in surplus or deficit does not exceed the
amount needed to restore the carrying amount to the
carrying amount that would have been determined (net
of depreciation) if no impairment loss had been
recognised.
(ii) Any remaining part of the increase is credited directly
to net assets/equity in revaluation surplus. On
subsequent disposal of the investment property, the
revaluation surplus included in net assets/equity may
be transferred to accumulated surpluses or deficits.
The transfer from revaluation surplus to accumulated
surpluses or deficits is not made through surplus or
deficit.
74. For a transfer from inventories to investment property that will
be carried at fair value, any difference between the fair value of
the property at that date and its previous carrying amount
should be recognised in surplus or deficit.
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75. The treatment of transfers from inventories to investment property
that will be carried at fair value is consistent with the treatment of
sales of inventories.
76. When an entity completes the construction or development of a
self-constructed investment property that will be carried at fair
value, any difference between the fair value of the property at
that date and its previous carrying amount should be recognised
in surplus or deficit.
Disposals
77. An investment property should be derecognised (eliminated
from the balance sheet) on disposal or when the investment
property is permanently withdrawn from use and no future
economic benefits or service potential are expected from its
disposal.
78. The disposal of an investment property may be achieved by sale. In
determining the date of disposal for investment property, an entity
applies the criteria in ASLB 9 for recognising revenue from the sale of
goods and considers the related guidance in the Implementation
Guidance to ASLB 9. ASLB 13 applies to a disposal effected by
entering into a sale and leaseback.
78A. An Investment Property should also be derecognised in case it has
been declared as heritage property which does not have commercial
use or acquired by the Central Government/ State Government for
any purpose.
79. If, in accordance with the recognition principle in paragraph 20, an
entity recognises in the carrying amount of an asset the cost of a
replacement for part of an investment property, it derecognises the
carrying amount of the replaced part. For investment property
accounted for using the cost model, a replaced part may not be a part
that was depreciated separately. If it is not practicable for an entity to
determine the carrying amount of the replaced part, it may use the
cost of the replacement as an indication of what the cost of the
replaced part was at the time it was acquired or constructed. Under
the fair value model, the fair value of the investment property may
already reflect that part to be replaced has lost its value. In other
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Investment Property
cases it may be difficult to discern how much fair value should be
reduced for the part being replaced. An alternative to reducing fair
value for the replaced part, when it is not practical to do so, is to
include the cost of the replacement in the carrying amount of the
asset and then to reassess the fair value, as would be required for
additions not involving replacement.
80. Gains or losses arising from the retirement or disposal of
investment property should be determined as the difference
between the net disposal proceeds and the carrying amount of
the asset, and should be recognised in surplus or deficit (unless
ASLB 13 requires otherwise on a sale and leaseback) in the
period of the retirement or disposal.
81. The consideration receivable on disposal of an investment property is
recognised initially at fair value. In particular, if payment for an
investment property is deferred, the consideration received is
recognised initially at the cash price equivalent. The difference
between the nominal amount of the consideration and the cash price
equivalent is recognised as interest revenue in accordance with
ASLB 9, using the effective interest method.
82. An entity applies ASLB 19, „Provisions, Contingent Liabilities and
Contingent Assets‟ or other standards, as appropriate, to any
liabilities that it retains after disposal of an investment property.
83. Compensation from third parties for investment property that
was impaired, lost, or given up should be recognised in surplus
or deficit when the compensation becomes receivable.
84. Impairments or losses of investment property, related claims for or
payments of compensation from third parties, and any subsequent
purchase or construction of replacement assets are separate
economic events and are accounted for separately as follows:
(a) Impairments of investment property are recognised in
accordance with ASLB 21 or ASLB 26, as appropriate;
(b) Retirements or disposals of investment property are
recognised in accordance with paragraphs 77–82 of this
Standard;
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(c) Compensation from third parties for investment property that
was impaired, lost, or given up is recognised in surplus or
deficit when it becomes receivable; and
(d) The cost of assets restored, purchased, or constructed as
replacements is determined in accordance with paragraphs
26–38 of this Standard.
Disclosure
Fair Value Model and Cost Model
85. The disclosures below apply in addition to those in ASLB 13,
„Leases‟. In accordance with ASLB 13, the owner of an investment
property provides lessors‟ disclosures about leases into which it has
entered. An entity that holds an investment property under an
operating lease provides lessors‟ disclosures for any operating leases
into which it has entered.
86. An entity should disclose:
(a) Whether it applies the fair value or the cost model along
with justification of using or not using a particular model;
(b) [Refer to Appendix 1];
(c) When classification is difficult (see paragraph 18), the
criteria it uses to distinguish investment property from
owner-occupied property and from property held for sale
in the ordinary course of operations;
(d) The methods and significant assumptions applied in
determining the fair value of investment property,
including a statement whether the determination of fair
value was supported by market evidence, or was more
heavily based on other factors (which the entity should
disclose) because of the nature of the property and lack
of comparable market data;
(e) The extent to which the fair value of investment property
(as measured or disclosed in the financial statements) is
based on a valuation by an independent valuer who holds
a recognised and relevant professional qualification and
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Investment Property
has recent experience in the location and category of the
investment property being valued. If there has been no
such valuation, that fact should be disclosed;
(f) The amounts recognised in surplus or deficit for:
(i) Rental revenue from investment property;
(ii) Direct operating expenses (including repairs and
maintenance) arising from investment property that
generated rental revenue during the period; and
(iii) Direct operating expenses (including repairs and
maintenance) arising from investment property that
did not generate rental revenue during the period.
(g) The existence and amounts of restrictions on the
realisability of investment property or the remittance of
revenue and proceeds of disposal; and
(h) Contractual obligations to purchase, construct, or
develop investment property or for repairs, maintenance,
or enhancements.
Fair Value Model
87. In addition to the disclosures required by paragraph 86, an entity
that applies the fair value model in paragraphs 42–64 should
disclose a reconciliation between the carrying amounts of
investment property at the beginning and end of the period,
showing the following:
(a) Additions, disclosing separately those additions resulting
from acquisitions and those resulting from subsequent
expenditure recognised in the carrying amount of an
asset;
(b) Additions resulting from acquisitions through entity
combinations;
(c) Disposals;
(d) Net gains or losses from fair value adjustments;
(e) The net exchange differences arising from foreign
currency transaction, if applicable;
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(f) Transfers to and from inventories and owner-occupied
property; and
(g) Other changes.
88. When a valuation obtained for investment property is adjusted
significantly for the purpose of the financial statements, for
example to avoid double-counting of assets or liabilities that are
recognised as separate assets and liabilities as described in
paragraph 59, the entity should disclose a reconciliation
between the valuation obtained and the adjusted valuation
included in the financial statements, showing separately the
significant adjustments.
89. In the exceptional cases referred to in paragraph 62, when an
entity measures investment property using the cost model in
ASLB 17, the reconciliation required by paragraph 87 should
disclose amounts relating to that investment property separately
from amounts relating to other investment property. In addition,
an entity should disclose:
(a) A description of the investment property;
(b) An explanation of why fair value cannot be determined
reliably;
(c) If possible, the range of estimates within which fair value
is highly likely to lie; and
(d) On disposal of investment property not carried at fair
value:
(i) The fact that the entity has disposed of investment
property not carried at fair value;
(ii) The carrying amount of that investment property at
the time of sale; and
(iii) The amount of gain or loss recognised.
Cost Model
90. In addition to the disclosures required by paragraph 86, an entity
should disclose:
(a) The depreciation methods used;
(b) The useful lives or the depreciation rates used;
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Investment Property
(c) The gross carrying amount and the accumulated
depreciation (aggregated with accumulated impairment
losses) at the beginning and end of the period;
(d) The reconciliation of the carrying amount of investment
property at the beginning and end of the period, showing
the following:
(i) Additions, disclosing separately those additions
resulting from acquisitions and those resulting
from subsequent expenditure recognised as an
asset;
(ii) Additions resulting from acquisitions through
entity combinations;
(iii) Disposals;
(iv) Depreciation;
(v) The amount of impairment losses recognised, and
the amount of impairment losses reversed, during
the period in accordance with ASLB 21 or ASLB
26, as appropriate;
(vi) The net exchange differences arising from foreign
currency transaction, if applicable;
(vii) Transfers to and from inventories and owner-
occupied property; and
(viii) Other changes.
91-103. [Refer to Appendix 1]
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Illustrative Decision Tree
This decision tree accompanies, but is not part of, ASLB 16.
Start
Is the property held
Yes
for sale in the
ordinary course of Use ASLB 12, „Inventories‟
operations?
No
Is the property owner Yes Use ASLB 17, „Property Plant
occupied? and Equipment‟
(cost or revaluation model)
No
The property is an investment property
Which model is Fair Value
chosen for all Model Use ASLB 16, „Investment Property‟
investment (Fair Value Model)
properties?
Cost Model Use ASLB 17, „Property Plant and
Equipment‟ (cost model) with disclosure
from ASLB 16, „Investment Property‟
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Investment Property
Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies
(ASLB) 16 and the corresponding International Public Sector
Accounting Standard (IPSAS) 16, „Investment Property’.
Comparison with IPSAS 16, ‘Investment Property’
1. Different terminology have been used in the ASLB 16 as compared to
corresponding IPSAS 16, e.g., terms „balance sheet‟ has been used
in place of „statement of financial position‟.
2. Paragraph 3 of IPSAS 16 that pertained to applicability of IPSASs
has been deleted by the IPSASB from this Standard because a
separate document of IPSASB on „Applicability of IPSASs‟ now deals
with the same. However, the provisions pertaining to applicability of
ASLBs has been covered in the Standard itself in line with other
issued ASLBs.
3. In India, the intention of the Local Bodies may not be to earn rentals
and capital appreciation in each case. Additional commentary in this
regard has been provided in the standard.
4. As per ASLB 13, „Leases‟, the lease of land or/and building to be
treated as operating lease for the purpose of accounting, therefore,
consequential changes have been done in this ASLB.
5. Fair value of Investment property is to be disclosed only when fair
value model is adopted by the entity. However, IPSAS 16 requires
fair value disclosures in case of adoption of cost model as well.
6. Examples provided in paragraphs 9, 12 and 67 of IPSAS 16 have
been modified to make these more relevant for Local Bodies.
7. Paragraph 78A has been inserted in ASLB 16 with regard to
derecognising the investment property that has been declared as
heritage property.
8. Paragraphs 91-100 pertaining to transitional provisions have been
deleted as a separate ASLB 33, „First time adoption of ASLBs‟ has
been issued that contains all transitional provisions at one place.
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9. Paragraphs 101–102 pertaining to effective date have been deleted
as the ASLB 16 would become mandatory for the Local Bodies in a
State from the date specified by the State Government concerned.
10. The following paragraphs appear as „Deleted‟ in IPSAS 16. In order
to maintain consistency with paragraph numbers of IPSAS 16, the
paragraph numbers are retained in ASLB 16:
(i) Paragraph 4
(ii) Paragraph 13 (d)
(iii) Paragraph 29
(iv) Paragraph 66 (e)
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