Leases under Ind AS 116 wef 1st April’ 2019
Leases: On 30th March 2019, MCA notified Indian Accounting Standard (Ind AS) 116 applicable w.e.f 1st April 2019. by replacing the existing standard on leases (Ind AS 17).
The New Standard eliminates the classification of lease as either ‘finance leases’ or ‘operating leases’ and introduces a single model of accounting by recognizing it as ROU (Right of Use Assets) of identified lease.
Identification of leases
All the following conditions must be satisfied for a lease agreement to fall under purview of Ind AS 116:
- There should be an identified asset. This may be explicitly or implicitly specified in a contract.
- Lessee has right to obtain economic benefit from the use of the asset.
- Lessee has right to direct use of the asset throughout the lease period.
The following types of leases are exempt:
- Lease with a lease term of 12 months or less
- Lease for which the underlying asset is of low value
(For cases other than Leasehold Land and annual lease rental is less than Rs. 10 lacs P.A, are excluded from lease rental accounting keeping materiality in to consideration)
Note:- A detailed communication has already been sent on INDAS 116 requirement, change in accounting from past vs future requirement etc.. ( refer email dated 13th February, 2019 from corporate team) on INDAS 116.
Impact on Financials
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Various Type of Lease evaluated
- Leasehold Lands
- Lease of Godowns
- Bus / Van hiring contracts
- Lease of empty containers
- Fork lifts and cranes
- Bulker for transport of chips
- ISO Tanks
- Rent of Guest Houses
- Rent of office space (eg. Corporate office, SSC office, CTG,etc.)
- Facility for supply of Nitrogen (Inox / Airliquide)