Assurance Gazette – January 2025 Edition

This edition shares insights on enhancing financial reporting reliability and transparency, drawing from NFRA’s key findings. It addresses challenges in critical areas like revenue recognition, trade receivables, inventory valuation, and related party transactions, offering guidance for management and auditors to reinforce internal controls, improve audit diligence, and ensure strong compliance practices.

In this issue, we also bring The Expert Advisory Committee’s analysis of the company’s share in the property to be classified as Inventory or Investment Property under Ind AS 2 or Ind AS 40 respectively. It captures the Committee’s conclusion that the property aligns with Inventory classification as the primary intent of the business to meet criteria under specified standard.

Classification of the Project as Inventory or Investment Property under Ind AS framework-EAC Opinion

Facts of the Case

The Company, a PSU under the Ministry of Housing & Urban Affairs, achieved Navratna status in 2014 and operates in PMC(Project Management Consultancy), Real Estate, and EPC Engineering, Project and Construction) segments. It developed a joint real estate project with AMC (‘A’ Municipal Corporation) (76.98% Company, 23.02% AMC) at J Place, intending to sell it post completion. Despite multiple sale attempts from 2008 to 2014, the property could not be sold due to lack of interest and missing statutory approvals. In the interim, it was temporarily rented out to government entities, with income shared as per the ownership ratio. The Occupancy Certificate was obtained on Jan-24, and the Company plans to launch the sale soon after completing RERA and other requirements.

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The Company seeks the Expert Advisory Committee’s opinion on whether its share of assets in the J Place property should continue to be classified as ‘Real Estate Inventory’, reclassified as ‘Investment Property’, or treated differently under applicable Ind AS.

Points considered by the Committee- Analysis of Inventory Classification Under IND AS 40

The primary issue is whether the company’s share of assets in the J Place Property project should be classified as ‘Inventory’ or ‘Investment Property’. The analysis focuses exclusively on this classification and does not address other accounting or legal considerations.