Your email address will not be published. Do let me know if your issue is not addressed post referring the Bulletin. On March 30, 2019, the Ministry of Corporate Affairs notified the new standard to be effective for annual periods beginning on or after 1 April 2019. If an entity chooses to apply any one of the exemptions, payments are recognised on a straight-line basis or another systematic basis that is more representative of the pattern of the lessee’s benefit. Ind as 116 Leases 1. its carrying amount as if the Standard had been applied since the commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application (i.e. Ind AS 116 eliminates the classification of leases as either finance or operating lease as required by Ind AS 17, Leases. 1. Ind-AS 116 replaces the existing standard on leases i.e. Ind AS 116 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Lessee may choose not to apply transition provision to short-term leases and leases for which the underlying asset is of low value. Requirements with regard to lessor accounting are substantially similar to accounting requirements contained in Ind AS 17. Links to Notes:https://drive.google.com/drive/folders/19SQXDfK_OMTUIo0D-EuYhkohpMguZzBF?usp=sharing 2. Although the same is paid by the lessee to the lessor, it cannot be considered as ‘lease payment’ since it is paid to the government and the lessor is merely acting as a collection agent. Ind AS standalone financial statements will be impacted by Ind AS adoption. to apply this Standard to contracts that were previously identified as leases applying Ind AS 17, Leases. 4. Accordingly, Ind AS 116 contains scope exceptions for: (a) leases to explore for or use minerals, oil, natural gas and similar non-re-generative resources. If a lessee does not present right-of-use assets separately in the balance sheet, the lessee shall include right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they were owned and disclose which line items in the balance sheet include those right-of-use assets. I will be happy to here you out. Appendix C to Ind AS 116 allows Lessees to choose between two transition approaches, full retrospective approach or the modified retrospective approach which needs to be applied consistently to all leases. What will be the lease term for land lease agreement. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Implementation of Ind AS 116 Ind AS 116 is the Indian adaptation of IFRS 16 Globally Ind AS 116 has been introduced with effect from 1st January, 2019 In India, ICAI issued an Exposure Draft in 2017 and kept it open for public comments However, the same has not been notified yet Disclaimer: This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. If we go with full retrospective approach then in your case, ROU will be created at upfront amount Paid plus initial direct cost incurred in the lease commencement year. Ind AS 116 gives lessees optional exemptions for certain short-term leases and leases of low-value assets. Ind AS 116 does not contain substantial changes to lessor accounting compared to Ind AS 17. The effective date of the new Ind AS 116 is 1 April 2019. The Institute of Chartered Accountants of India (ICAI) is a statutory body established by an Act of Parliament, viz. Ind AS 116. The new standard requires entities to make more judgements and estimates and make more disclosures. Any asset or liability created by lessee relating to favourable or unfavourable terms of an operating lease which is subsequently acquired as part of a business combination by an acquirer needs to be derecognised on the date of initial application. Ind AS 116 eliminates the requirement for a lease to be classified as either operating or finance lease for a lessee. In this article, you’ll learn about the main changes that Ind AS 116 introduces to the accounting for leases, illustrated on a very simple example. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Under Finance Lease, lessors derecognize the underlying asset and book profit or loss on such derecognition. The “State Electricity Co.” is a Govt undertaking which was once part of “State Electricity Board” when it received land from Govt. ICAI Press Release. Short-term leases are defined as leases with a lease term of 12 months or less. Under Ind AS 17, Lessor is required to classify Leases under two categories viz. Under the full retrospective transition approach, Lessees are required to apply this standard retrospectively to each prior reporting period presented. 5. This standard applies to a contract that contains lease. NEW DELHI: Chartered accountants' apex body ICAI on Monday said the amendment to the Ind-AS 116 would be useful for lessees having a large number of leases while accounting for COVID-19-related rent concessions. 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Ind AS 116, Leases, replaces the existing standard Ind AS 17, Leases, and interpretation/ guidance contained in its appendices. To recognise a right-of-use asset at the date of initial application, the lessee shall choose, on a lease-by-lease basis, to measure that right-of-use asset at either: Here, the lessee shall not restate comparative information. (as at April 1, 2019). All Rights Reserved. Under Ind AS 116, a lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. April 1, 2019) at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. Notifications Description: G.S.R 111(E) dated 16 Feb 2015 : The Companies (Indian Accounting Standards) Rules, 2015. Ind AS 116 covers Lease transactions for all the Assets with certain exclusions which are: leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources; leases of biological assets held by a lessee (Covered under Ind AS 41); service concession arrangements (Covered under … D. Lessee’s incremental borrowing rate: 10% p.a. 3. As per Ind AS 116, a lease is a contract, if the contract conveys the 'right to control' the use of an 'identified asset' for a period of time in exchange of consideration. Right to control the use of an identified asset can be assessed by considering whether the customer has both of the following throughout the period of use: An entity shall reassess whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed. Lessee may elect not to apply above recognition principles in case of short-term leases (12 months or less) and leases for which the underlying asset is of low value (such as tablets, computers, small items of office furniture, etc). With Ind AS 116 in place, the carriers would have to show all such leases on their respective balance sheets. Sir, Thank u very much for prompt reply. This article aims at simplifying the concepts of Ind-AS 116 in relation to the classification of leases from the perspective of lessees majorly and compares those requirements to the previous standard (i.e. Ind AS 116 supersedes the existing Ind AS 17. 4. The payment made by “State Electricity Co.” to “State Govt” for Land is not equivalent to market value rather it is much lower than M.V. Lease component balance sheets is converged with the applicability of the asset received below market rate and 2 ) Consideration! Our newsletter to stay updated on Taxation and corporate Law you or me Mr. Prashant than... 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