Investment in property- as 13

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ramesh (Querist)
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18 July 2013 Whether payments made for property under construction based payment system whose possession are not received as on the reporting date should be classified as Investments under AS 13 or a Non Current Advance?
AS 13 defines- An investment property is an investment in land or buildings that
are not intended to be occupied substantially for use by, or in the
operations of, the investing enterprise.
and
Investments are assets held by an enterprise for earning income by
way of dividends, interest, and rentals, for capital appreciation, or for
other benefits to the investing enterprise.

Seeing the definition, any investment should be HELD or should be in POSSESSION to classify as an investment under AS-13.

But in substance, making payment for such investments is equally good to a procurement of a property. The value for the potential property which will be allotted increases in the same trend, had the money be invested on other ready to move properties. As the capital appreciation of the PAYMENT made is also increasing, the purpose of making payment is proved in favour of classifying them as investment.

I am getting confused about requirement of AS. Please suggest.

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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18 July 2013 Advances given against property under-construction should be classified under Capital WIP (Fixed Asset) instead of Investment

ramesh

ramesh (Querist)
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18 July 2013 Dear Kumar Mukesh, Thanks, But one thing is clear that it shall not be classified as Fixed Assets as it is not for business use, rather is for investment purpose. Another thing, it also cannot be a capital WIP because we are not doing the construction.

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CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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18 July 2013 Thanks for your correction. Actually the last reply was based upon that Asset is proposed to be used in Business.

However in your case when asset is still to be registered in name of buyer at the last financial year when payments actually made, In that as per rule define in AS-1 "SUBSTANCE OVER FORM"
The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely
by the legal form.
I.E. You should recognized Advances as Long Term Investment in property (Most suitable as per Para 8 of AS-13) even if property still be registered in the name of Buyer at the end of Financial Year.