Investment property is property held to earn rentals or for capital appreciation or both, rather than for use in producing goods or services or for administrative purposes, and not for sale in the ordinary course of business. The definition does the work. A retailer's own store is property, plant and equipment. The floor above it, let to a dentist, is investment property. A developer's unsold flats are inventory. A hotel isn't investment property either. Running a hotel is a service business.
The test that settles the hard cases is whether the property generates cash flows largely independently of the entity's other assets. Ancillary services tip it: a landlord providing security and maintenance still holds investment property, while a landlord providing catering, housekeeping and a front desk is running an operation.
How do the three rulebooks measure investment property?
The three rulebooks part company on measurement. For Indian comparability, this carve-out matters more than any other.
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| Recognition | Subsequent measurement | Where changes land | |
|---|---|---|---|
| IFRS (IAS 40) | Separate line | Policy choice: cost model or fair value model, applied to all investment property | Fair value model: all changes to profit or loss, no depreciation |
| Ind AS 40 | Separate line | Cost model only; fair value must be disclosed | Depreciation to profit or loss; the fair value appears in a note and nowhere else |
| US GAAP | No such category | Property, plant and equipment at cost less depreciation and impairment | Nowhere, absent an entity applying investment-company accounting |
An Indian analyst therefore reads a fair value in a note and a carrying amount on the face, and the two can be far apart. A European analyst reads a fair value on the face with its movements running through profit. An American analyst reads depreciated cost and has to find the value somewhere else entirely.
One building, three balance sheets, three answers.
How do transfers to and from investment property work?
Transfers happen only on a change in use, and an actual event has to evidence it. A change in management's intentions doesn't count. Most errors creep in at the routing on transfer, and the rules are asymmetric on purpose.
Moving from owner-occupied property to investment property at fair value, the property is accounted for under the property, plant and equipment standard up to the date of the change in use, and the difference between fair value and carrying amount on that date is treated as a revaluation. It goes to other comprehensive income, not to profit. That's the rule that puts ₹8,60,00,000 into Chettinad Estates' equity in Worked Example 8 without touching a rupee of its reported earnings.
Moving from investment property at fair value to owner-occupied property or to inventory, the fair value at the date of the change in use becomes the deemed cost going forward. Every fair-value movement up to that date has already run through profit, so there is nothing left to route.
Moving from inventory to investment property at fair value, the difference between fair value and the previous carrying amount goes to profit or loss, because the entity was always going to sell that asset and this is a realisation event in substance.
What does the measurement basis do to profit and returns?
And under a fair-value model, no depreciation is charged at all. That's the biggest driver of the profit difference between an IFRS filer and its Indian or American peer. Chettinad's three-year profit under the two regimes differs by ₹2,00,00,000, and its closing balance sheet by ₹10,60,00,000, on a building neither firm has touched.
One consequence for the returns work. When you're told to strip investment property out of invested capital as a non-operating asset, the figure you're stripping is measured on whichever basis that filer uses. Stripping a fair value from one company and a cost struck years ago and depreciated ever since from another produces two invested-capital figures that are not the same kind of number, and the return on invested capital computed from them is not comparable. Take the fair value from the note in both cases and say that you did. Then note the date at which it was struck.