Ind AS 116 - Lease Accounting and GAAP Variances.pdf

Ind AS 116 - Lease Accounting and GAAP Variances

1. Lease Accounting

2. Lease Accounting
A lease is an arrangement under which a lessor agrees to allow a
lessee to control the use of identified property, plant, and
equipment for a stated period of time in exchange for one or more
payments.
There are several types of lease designations, which differ if an
entity is the lessee or the lessor.
The two most common types of leases are operating leases and
financing leases (also called capital leases). In order to
differentiate between the two, one must consider how fully the
risks and rewards associated with ownership of the asset have
been transferred to the lessee from the lessor.

3. GAAP Variances on
leases

4. GAAP Variances on leases
Particulars AS 19 IND AS 116
Scope &
Coverage
Thescopeofstandardspecificallyexcludeslease
agreementtouseland.
Landiscoveredbythefollowingstandard
Nospecificprovisionsrelatingtosub-lease.
Thestandardcoversspecificprovisionsrelatingtotheright
touseassetsinasub-leaseaswell.
Noprovisionrelatingtomeasurementofproperty Provisionrelatedtoinvestmentpropertyprovidedby
lessorsunderoperatingleasesisremoved.
Definition of
lease
Aleaseisanagreementwherebythelessorconveystothe
lesseeinreturnforapaymentorseriesofpaymentstheright
touseanassetforanagreedperiodoftime.Nospecific
guidancetodeterminesucharrangementgiven.
Aleaseisthecontractthatconveystherighttocontrolthe
useofanidentifiedassetforaperiodoftimeinexchange
forconsideration.Specificguidancerelatingtoassessment
ofcontractisprovidedinthestandard.
Definition of
residual value
Para 3.11 defines residual value asestimated fair value of
the asset at the end of the lease term
Not defined in standard

5. GAAP Variances on leases
Particulars AS 19 IND AS 116
Sale &
Leaseback
Transactions of
Finance Lease
Para 48 of the standard states with Profit/Loss
arising from such transactions must be deferred
and amortized over the lease termin proportion
to the depreciation of the leased asset
Itstatesthatthegains/lossshouldbedeferredandamortizedoverthe
leaseterm.Theratioisnotdefined.
Treatment of
Initial Direct Cost
–Operating
Leases
Para42statesthatthelessorhasanoptionto
eitherdeferthebookingofcostandallocateto
incomeovertheleaseterminproportiontothe
recognitionofrentincome,orarerecognisedas
anexpenseinthestatementofprofitandlossin
theperiodinwhichtheyareincurred.
Para52statesthatInitialdirectcostsincurredbylessorsin
negotiatingandarranginganoperatingleaseshallbeaddedtothe
carryingamountoftheleasedassetandrecognisedasanexpense
overtheleasetermonthesamebasisastheleaseincome.
Treatment of
Initial Direct Cost
–Finance Leases
Para31mentionsthattheinitialdirectcostsare
eitherrecognizedimmediatelyinthestatement
ofprofitandlossorallocatedagainstthefinance
incomeovertheleaseterm.
Para69mentionsthatitisincludedintheinitialmeasurementofthe
netinvestmentintheleaseandreducetheamountofincome
recognisedovertheleaseterm.Theinterestrateimplicitinthelease
isdefinedinsuchawaythattheinitialdirectcostsareincluded
automaticallyinthenetinvestmentinthelease;thereisnoneedto
addthemseparately.
Lease IncentivesNospecificdiscussionofleaseincentives. Theincentivesarerecordedasdeductionfromrentals.

6. GAAP Variances on leases
Particulars AS 19 IND AS 116
Classification of
Lease in hands of
lessee
Leaseswererecordedaspertheirclassificationinto
OperatingandFinanceLease
LesseewillfollowSingleLeaseAccounting.Thereisno
classificationasoperatingorfinanceLeaseforlessee.
Accounting and
Presentation in
financial
Statement by
lessee by lessee
UnderOperatinglease,assetwasnotrecordedinbooks
andrecognizedleasepaymentsasexpenseintheprofit
andlossaccount.
Lesseewillrecognizeassetsandliabilitiesforallleaseswith
atermofmorethan12months,unlesstheunderlyingasset
isoflowvalue.
Lesseewouldrecognizedepreciationexpenseontherightof
useassetandinterestexpenseontheleaseliability,classify
theleasepaymentsintoprincipalandinterestcomponent.
Lease
modification
Notreatmentmentionedinthestandard. Para44andPara79specificallydealwithleasemodification
anditsaccounting.
Disclosures
Requirements of
lessor
Exemptiongrantedtosmallandmediumsized
companiesforcertaindisclosures.
AdditionalRequirementsofdisclosureforlessorsuchas
disclosureofmaturityanalysisofleasepayments;
quantitativeandqualitativeexplanationofsignificantchanges
incarryingamountofnewinvestmentinfinancelease.
Disclosures
Requirements of
lessee
NA Additionalrequirementsasdisclosureofmaturityanalysisof
leasepayments;quantitativeandqualitativeexplanationof
significantchangesincarryingamountofnewinvestmentin
financeleases.

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