Ind AS 116 digest – 1. A brief Introduction

A New Era of Accounting for Lease contracts by Lessees

🍎 Applicability – (para 3)

This standard is applicable for all lease contracts unless otherwise exempted or covered specifically in another Ind AS

This standard is not applicable on following type of leases –

a. leases to explore for or use minerals, oil, natural gas and similar non regenerative resources; within the scope of Ind AS 106, Exploration for and Evaluation of Mineral Resources;

b. leases of biological assets within the scope of Ind AS 41, Agriculture, held by a lessee;

c. service concession arrangements within the scope of Appendix D of the Ind AS, Service Concession Arrangements, of Ind AS 115, Revenue from Contracts with Customer;

d. licences of intellectual property granted by a lessor within the scope of Ind AS 115, Revenue from Contracts with Customers; and

e. rights held by a lessee under licensing agreements within the scope of Ind AS 38, Intangible Assets, for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.

🍎 Option for application- (para 4)

A lessee may, but is not required to, apply this Standard to leases of intangible assets other than those described in paragraph 3(e).

🍎Recognition exemptions (para 5)

An entity has option not to apply this standard in following cases –

i. where lease is short term i.e. less than 12 months

Note –This option to be used for class of assets such as assets of similar nature and use in an entity’s operations.

Note – If there is lease modification or there is change in lease term, then entity can treat this as new lease for applying above exemption

ii. leases for which the underlying asset is of low value such as  tablet and personal computers, small items of office furniture and telephones (fully explained in para B3 to B8)

Note – This option to be used for which the underlying asset is of low value can be made on a lease-by-lease basis.

🍎 Consequence of opting para 5

Where the entity opts for para 5, then lessee shall recognize the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis. The lessee shall apply another systematic basis if that basis is more representative of the pattern of the lessee’s benefit.

🍎 Case where para 5 is not applicable or not opted

Where para 5 is not applicable or not opted by the entity, then para 22 to 49 of the Ind AS 116 applies where recognition, measurement and presentation of lease contract has been fully explained.

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December 2020