Journal entries for lease accounting

Journal entries for lease accounting

Details for lease accounting

Let us assume the following details for lease accounting:

Lease start date: 1-Apr-2019

Lease end date: 31-Mar-2024

Lease payments: Rs. 2,75,000

Payment frequency: Annual – payable at the end

Incremental borrowing rate: 9%

 Right-of-use

Post 28 29 ROU 4
Rent Journal 1

 Recognition of Lease liability

Post 28 29 Lease Liability 3
Post 28 29 Journal 2 3

Amortisation of Right-of-use

Post 28 29 AssetROU 6
Post 27 Journal 5 1

Finance cost

Post 28 29 Lease Liability 4
Lease Liability Journal 3

Trial balance

Post 28 TrialBalance 2

Profit & Loss Account

Post 28 PL 3

Balance Sheet

Post 28 Balance sheet 2
Consulting 1

Statement on Auditing Standards-SA 265

The scope and objective of the auditing standards related to the auditor’s responsibility to communicate deficiencies in internal control to those charged with governance and management. The SA 265 applies when the auditor identifies deficiencies in internal control during the audit of financial statements. The auditor is required to obtain an understanding of internal control relevant to the audit when identifying and assessing the risks of material misstatement. However, the auditor is not required to express an opinion on the effectiveness of internal control.
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What is the difference between operating lease and finance lease?

An operating lease is a short-term lease in which the lessor (the owner of the asset) rents the asset to the lessee (the user of the asset) for a specific period of time, usually less than the useful life of the asset. At the end of the lease term, the lessee returns the asset to the lessor.
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Ind AS Accounting Standards

Ind AS (Indian Accounting Standards) are a set of accounting standards developed by the Institute of Chartered Accountants of India (ICAI) and adopted by companies in India for preparing their financial statements. These standards are based on the principles of International Financial Reporting Standards (IFRS) and are intended to improve the comparability and consistency of financial reporting in India. They are applicable to companies that are listed on a stock exchange in India or have a net worth of more than INR 250 crore.
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Lease accounting, lease period extended after year 1 – Journal entries

Lease accounting, lease period extended after year 1 – Journal entries Details for lease accounting for lease extension Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Lease extension on 1-4-2020: Lease Modification effective date: 1-Apr-2020 Lease end date extended up to: 31-Mar-2026 All other terms remain the same When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of…

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Lease accounting, interest-free deposit lease period extended after year 1

Lease accounting, interest-free deposit lease period extended after year 1 Details for lease accounting for lease extension When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed. Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end…

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Lease accounting Journal Entries for Modification

Lease accounting Journal entries for Modification Details for lease accounting with modification When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed. Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Lease…

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Interest rate 1

Lease accounting with an interest-free deposit

Lease accounting with an interest-free deposit Details for lease accounting Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Right-of-use Recognition of Lease liability Amortisation of Right-of-use Finance cost Interest free deposit Imputed interest income Amortisation of Right-of-use Trial balance Profit and Loss Account Balance Sheet Lease Accounting Software Pricing

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Steps in lease accounting

Steps in lease accounting Details for lease accounting Let us assume the following details for lease accounting as per Ind AS 116 Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Step 1: Calculate the right-of-use The right-of-use is first calculated as follows: Step 2: Prepare amortisation schedule The amortisation schedule based on straight line method is calculated as follows: Step 3: Calculate Lease Liability The lease liability is computed as follows: Step 4: Calculate the finance charges The finance charges for the lease liability…

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Operating lease vs financing lease

Operating lease vs financing lease Classification of Lease Leases are classified as either finance lease or operating lease. A finance lease is like buying an asset with the finance provided by an external party. It allows a lessee to own an asset with the help of finance from the lessor. The lessee has the option to be the permanent owner of the asset at the end of the lease term, subject to certain terms. An operating lease is like an asset rental. It allows the lessee to use the leased asset for a specific period of time. The specified period…

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Accounting software

Lease Accounting as per IFRS 16 vs. AS 19

Lease Accounting as per IFRS 16 vs. AS 19 Sl. No.TopicInd AS 116AS 191Applicability to land & buildingSpecific provisions dealing with leases of land and building exists in Ind AS 116Not applicable to lease of lands2Residual ValueNo definition of “Residual Value”The term “Residual Value” is defined3Inception & commencement of leaseInception of lease and commencement of lease are different as per Ind AS 116Both the terms are used at some places in AS 19, and these terms are not defined and distinguished4Recognition dateLease recognised as finance leases as assets and liabilities in balance sheet at the commencement of the lease termRecognition…

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