Exposure Draft on revised lease standard Ind AS 116 has been issued by the Institute of Chartered Accountants of India (ICAI). Ind AS 116 will replace the existing lease standard Ind AS 17. Last year, International Accounting Standards Board (IASB) revised the lease standard and issued new IFRS 16, Leases.
Ind AS 116, Leases sets out the provisions for the recognition, measurement, presentation and disclosures of leases. There are differences between Ind AS 116 and Ind AS 17. The major differences are as follows:
1. Under Ind AS 116, a part of the contract can also be treated as lease if the same conveys the right to use an asset for a period of time for certain consideration.
2. The principles of Ind AS 116 with regards to accounting of lease by the lessee is substantially different from that of Ind AS 17. However, requirements of Ind AS 116 with regard to lessor is substantially similar to Ind AS 17
3. Recognition of leases having lease term less than 12 months or value of underlying asset of the lease is low, by lessee is not mandatory under Ind AS 116. In such cases, lessee have to recognise the lease rentals as expense on a systematic basis considering pattern of benefits from the asset.
4. Ind AS 116 provides for a single accounting model for lessee. Classification of lease as either finance or operating lease by the lessee is not required under Ind AS 116. Initially, lessee should recognise right-of-use assets at cost similarly to other non-financial assets, like property, plant & equipment, intangible assets etc. and lease liabilities at the present value of all future payments.
5. Subsequently, lessee should measure the right-of-use assets either at cost or other specified models like revaluation model. The amount of interest paid on lease liability should be recognised as finance cost.
6. Under Ind AS 116, lessee shall depreciate the right-of-use asset in accordance with Ind AS 16, Property, Plant and Equipment.
Apart from this the Draft also provides principles with regard to transition from Ind AS17 to Ind AS 116. Ind AS 116 will be applicable from April 1, 2019.